Question

Describe the three generic strategies and some of the pitfalls associated with each of the three generic strategies.

Answer 1

Generally, there are three types of generic strategies made by Porter. Cost leadership, diversification and focus.
Cost leadership- this strategy is all about manufacturing the product or services at the lowest cost possible lower than the rivals. In this approach, the companies want to become a leader in terms of manufacturing or producing the product or services into the lowest cost possible. The cost minimization is done at every possible level. It could be done in the procurement of raw material, labour costs, operations etc. If you talk about the pitfall of this strategy then the quality is compromised due to the cost leadership. A great example will be Wal-Mart. Wal-Mart is known for cost leadership strategy. It lowers the operating cost. The executive of the companies fly in the economy class and further their hotel rooms are shared. Because of that their employees are asked to bear the heat or cold when the weather is changed. Because of those reasons the employees are irritated and do not like their job. The wages are low and health insurance plans are also given lower benefit to the employees.
Differentiation- in the differentiation strategy the company offers its product or services completely different from the rivals. In this approach, the companies offer their product which is unique and rivals do not have those products to offer. It may be product, packaging, distribution etc. If we talk about the pitfall then customers show less interest in differentiation strategies. There is a threat of success of those products into the market hence the customers do not want to risk their spending. The early adopters may adopt the products. The example is the whole food market. This company separates itself from its rivals by selling organic and natural products. Their endeavour is to reduce the artificial ingredients into their products as low as possible than the rival products. Furthermore, the company also differentiates itself by showing that the brand is suitable for every age, gender and other factors. The companies have got a good amount of growth, especially on the Amazon prime. But it has to spend a huge amount of money on branding and winning the faith and trust of the customers.
Focus - When the company focuses on a particular segment of the market and use all the focus and strategies to sell only one specific product or services. By this way, the companies try to get a competitive advantage over rivals by focusing only on one segment. The pitfall of this strategy is that if the company becomes well known into the segment in which they are dealing, the company has the chances to lose the trust of the other segment of the consumer market that the company has decided to put on the back burner for their segment in which they are dealing into. This strategy is best used by Amazon. The company has focused on keeping the cost lowest possible and customer satisfaction