Michael Porter's Generic Strategies

According to Michael Porter, management must select a competitive strategy that will give it a distinct advantage by capitalizing on the strengths of the organization and the industry it is in. He has argued that a firm’s strengths ultimately falls into either cost advantage or differentiation, which applied either broadly or narrowly results in three generic strategies: cost leadership, differentiation, and focus. They are called generic strategies because they are not firm or industry dependent and are applied at the business unit level.

The first generic strategy is cost leadership, a strategy which strongly emphasizes working towards a unified goal of a lower-priced product.

With this strategy, the objective is to become the lowest-cost producer in the industry. An example of a company following cost leadership is Southwest Airlines.

According to a recent SWOT Analysis done on Southwest Airline’s, their current strategy is to position themselves as a cost leadership with a focus strategy. Within their company mission it states they aim to cost-effectively and reliably fly large number of customers on short, non-stop flights. They truly are committed to making flying available to everyone. According to the SWOT Analysis some of their strengths include maintaining operating expenses per available seat mile at 15-20% below average, all their aircraft

maintenance, turnaround, and training costs are contained, and they have a no meals, no central reservations, and no assigned seats. Southwest Airlines has experienced nothing but strong growth and profitability by following the cost-leadership strategy.

A differentiation strategy calls for the development of a product or service that offers unique attributes that are valued by customers and that customers perceive to be better than or different from the products of the competition. Above average returns come from charging a premium price for the unique and desired products and/or product features. Ben and Jerry’s, an innovative leader in the super premium ice cream industry, is a good example of a firm who