In the matrix below, it is clear that these two factors, strategic advantage and strategic focus, can be mapped against each other to result in three possible generic strategies with the focus strategy subdivided into two - cost or differentiation focus.
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The cost leadership strategy is for a company that is confident it can be the cost leader within its industry. It is chosen by companies with a cost-oriented strategic advantage and a broad strategic focus. This generic strategy can be utilized by reducing costs while maintaining the price charged, or by increasing market share through lower prices and lower costs. In order to be successful with this strategy, the company in question must be logistically efficient, have available capital to invest in cost-lowering technology, and have a sustainable method of cutting costs below their competitors.
The differentiation strategy is for a company that can create products that are more attractive than those of its competitors. It is for companies with a strategic advantage of product differentiation and a broad strategic focus. To successfully utilize this generic strategy, a company must invest in research and development, have an effective marketing and sales strategy, and produce high-quality goods or services.
The focus strategy is for companies that target niche markets and are able to produce either unique, low-cost products or very particular products for that market. This strategy can be used by either cost-focused or differentiation-focused businesses, but it must have a narrow strategic focus. Because of how niche the market is, these companies tend to develop strong brand loyalty which wards off new entrants to the market.
The best generic strategy will vary greatly depending on the business. Porter specifically warns against choosing multiple strategies as it is best to focus on one generic strategy.
Low-Cost Strategy Examples
Some low-cost strategy examples are relatively easy to think of. For example, Walmart is a low-cost provider and markets itself as such. Their famous slogan is Save money, live better, Walmart. They offer a wide range of goods to meet a broad focus in the market while charging lower prices than their competitors.
Another example is Dollar Tree. Until 2022, everything in the store cost only a dollar. This is obviously a low-cost strategy in which the company provides a broad variety of items at a low, predetermined price.
Product Differentiation Strategy Examples
Some other companies will utilize the differentiation strategy and focus on offering a unique product rather than a low-cost good. For example, Apple offers only technological goods such as iPhones, computers, and iPads. They do not argue that they are low cost; rather, they demonstrate the unique features of their goods that surpass the quality of their competitors' products. Because of their strategic positioning and marketing, they can charge higher prices while using the differentiation strategy.
Another example is L.L.Bean. This company targets consumers who have an enjoyment of the outdoors. Because of this, they specialize in gear for many types of outdoor activities, such as fishing and hiking. They produce high-quality goods for a wide target market at a higher price than competitors.
Focus Strategy Examples
A company with a cost focus strategy is one that does not necessarily offer the lowest prices within the industry, but offers the lowest prices compared to competitors within its target market. An example of this is Netflix, which offers a niche product of streaming services to its target audience. It maintains prices that are much lower than some of its competitors while focusing on this target market.
A company with a differentiation focus produces goods that are unique to its market and has features that exceed those of its competitors. An example of this is Breezes Resorts, which caters to couples without children. It offers a unique product of resorts that are adults only. Because of this feature, some couples are willing to pay more for the additional peace and quiet.
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