A company that tries to participate in each generic strategy, but fails to achieve any of them, is considered to be “stuck in the middle”. A company of this type has no competitive advantage, regardless of the industry it is in. In fact, such a company will compete at a disadvantage because the “cost leader”, the “differentiators” and those who “focus the attention” of the sector will be better placed to compete. However, it may be the case that a company that is caught in the middle continues to make interesting profits simply because it operates in a very attractive industry or because its competitors are also caught in the middle.
Without one of the two exceptions, it will be very difficult for companies to dedicate themselves to both differentiation and cost leadership, Porter says, because differentiation is often expensive. Each generic strategy is a fundamentally different approach to creating and maintaining superior performance and requires a different operating model. In terms of cost leadership, a company intends to become the low-cost producer in its industry. The sources of cost advantage are varied and depend on the structure of the industry.
They may include the search for economies of scale, patented technology, preferential access to raw materials, and other factors. A low-cost producer must find and take advantage of all sources of cost advantage. If a company can achieve and maintain leadership in overall costs, it will perform above average in its sector, as long as it can achieve prices equal to or close to the industry average. To be competitive enough, a normal company seeking profitability would have to understand how it works in its sector and how they affect the company in its particular situation.
. Michel Porter (1980) proposes that if companies follow any of their three recommended generic competitive strategies, they will be able to outperform their competitors who do not follow those strategies. The recommended strategies are cost leadership, differentiation and focus strategy. The three generic strategies suggested by Porter can be used effectively to defend against competitive forces in the business environment.
Industry forces take the form of competitive rivalry, barriers to entry, the threat of substitutes, the power of buyers and the power of suppliers. The relationship will be explained below. Surrogates could have two effects on industry competition and profitability. First, substitute products set a maximum price for industry products and services; exceeding the maximum would encourage customers to opt for available substitute products.
Second, surrogates can shape competition in an industry to increase their marketing and promotion efforts in order to stop the outflow of customers. It automatically pressures industry competitors to keep prices as low as possible and spend more funds to attract and retain customers, which can reduce industry sales and profits. For example, downloading mp3 music to the mp3 player compared to buying CDs at music stores. In addition, by applying strategies focused on differentiation, it effectively reduces the threat of surrogates.
The threat of substitutes is reduced in the case of the strategy focused on differentiation due to customer loyalty to the unique aspects of a particular product or service. Once again, we can take IKEA as an example of this strategy; IKEA has differentiated its marketing strategy in the way it attracts young customers. The IKEA marketing concept is unique and is not offered by other furniture companies. IKEA showcases all the products it sells in room-type environments, so customers don't need a decorator to help them figure out how to put the pieces together.
And each product has a label that explains the materials, size and price of the product. However, buyer power may change because it depends on the three generic strategies. Porter's generic strategies are the answer to one of the two central questions underlying the decisions that companies make regarding competitive strategy. Treacy and Wiersema (199), for example, are based on Porter's idea and modified Porter's Generic Strategies to convert them into Value Disciplines.
It is believed that an organization not only needs to have complete knowledge about industry events and events, but should also choose between the three generic strategies mentioned above to ensure better marketing performance. .