Generic Strategies

Question 1

Identify the three generic strategies enumerated by Michael Porter.

Answer 1

1. Cost leadership
2. Differentiation
3. Focus (or Niche)

Question 2

Define a “cost leadership strategy”

Answer 2

Under a cost leadership strategy, an entity seeks to be the low-cost provider for a given level of output in an industry. The strategy is intended to enable either higher gross profits than competitors or sales at a lower price to gain market share.

Question 3

Define a “differentiation strategy”.

Answer 3

Under a differentiation strategy, an entity seeks to develop and offer a product or service that has unique features for which customers are willing to pay a premium price that more than covers the extra cost of providing the product or service.

Question 4

Define a “focus strategy”.

Answer 4

Under a focus strategy, an entity focuses on a narrow industry segment (an industry subgroup or “niche”) and seeks to achieve either:

1. a cost advantage, or
2. differentiation