Porter’s generic strategies and Value Chain

Porter’s generic strategy is a three-dimensional strategy composed of three quadrants or sometimes four depending on how the matrix is drawn the name are differentiation, cost leadership and focus. or the lower quadrant can have cost focus and differentiation focus

Strategic Advantage: uniqueness perceived by customers and low-cost position

Strategic Target: Industry-wide and particular segment only

Porter’s generic strategies focus on the competitive advantage of a company. It can be used on businesses of all sizes and companies can have a choice of one or two types which can be applied to their competitive advantage strategy.

A company can use the low-cost strategy meaning prices are lower than its competitors or the industry-wide or by differentiating itself with quality, goods or services hence can charge higher prices. Also differentiating itself by customers command either lower prices or higher prices. Another way a company can differentiate itself is by offering its products or services to a selected segment of the market or industry-wide offering its products or services to many segments of many markets.

The generic strategy reflects the choice made regarding both types of competitive advantage and scope. the scope of the market refers to three types of markets which are:

A high-end market where high-quality products and services lay hence the prices are higher for the products or services. The market is mainly for high-income bracket customers who demand higher quality goods and services and are prepared to pay the prices for higher quality goods and services and also lie in the industry-wide quadrant.

The next market is the regular market where reasonable quality products or services lays usually generic products accessible by many working-class customers and are about 80% of the markets hence low-cost and regular prices lay, also lie in the industry-wide quadrant.

the third market is the second-hand/low-cost market where low-quality products or cheap products and services lay. This drives lower prices and is accessed by customers with a low-income bracket who are prepared to pay low prices for the product or services they access and also lies in the industry-wide quadrant.

In the three market type, a company can differentiate itself from its competitors by segmenting its markets and focusing on one or two types of the above strategies by choosing which market a company want to provide their products or services.

Porter's Value Chain

The value chain, first defined by Michael Porter, contains a series of activities that work together to bring value to the organisation. Value in this sense can best be defined by what a product or service is perceived to be worth over and above what that product or service costs to produce and bring to the end-user or customer. Value then is the profit margin for a company and the delight of a customer in receiving or possessing it.

The activities of the value chain are broken down into primary and supporting activities. The primary activities are what actually goes into the production of a product or those items that make a service available to a customer.

Porter, argues that the primary activities are inbound logistics, operations, outbound logistics, marketing and sales and customer service. The supporting activities are those activities that, though not to be directly associated with the production of a product or creation of a service are necessary to make the primary activities possible and to allow the primary activities to create optimum value.

The supporting activities comprise the company infrastructure, human resource management, technology development, and procurement.

Porter’s Value Chain Diagram

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