Porter's Generic Strategies

While the Ansoff Matrix helps a business choose which markets to compete in and what products to offer (strategic direction), Michael Porter's Generic Strategies framework addresses a different question: how should the business compete? Porter argued in 1985 that there are only three fundamentally different strategies a firm can adopt to achieve a sustainable competitive advantage. Understanding these strategies — and the risks of failing to commit to one — is essential for A-Level Business.

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The Three Generic Strategies

Porter identified three generic strategies, based on two dimensions: the source of competitive advantage (cost or differentiation) and the scope of the target market (broad or narrow):

	Broad Market	Narrow Market (Niche)
Low Cost	Cost Leadership	Cost Focus
Differentiation	Differentiation	Differentiation Focus

Strategy 1: Cost Leadership

A cost leadership strategy aims to become the lowest-cost producer in the industry while serving a broad market. The firm does not necessarily charge the lowest price — it aims to have the lowest costs, which gives it the highest margins and the flexibility to compete on price if necessary.

Sources of Cost Leadership