Examples For Michael Porter's Three Generic Strategies

1 Chau Trieu Luan | trieuluan@gmail.
com

EXAMPLES FOR
MICHAEL PORTERS
THREE GENERIC
STRATEGIES

2 Chau Trieu Luan | trieuluan@gmail.com
I. Michael Porters Five Generic Strategies
Opening a firm is easy but operating a successful firm is a difficult task. This requires all
resources such as good human power, finance, accounting, marketing, R&D, productions,
distributions, logistics and so on. So in order to run a successful firm, the firm must have a
strategy for its direction. According to Porter, advantages of strategies will help enterprises
to achieve competitive advantages compared to their rivals. There are three different
models that firms can apply:
- Cost leadership
- Differentiation
- Focus
Michael E. Porters Five Generic Strategy Model

Competitive advantage
Low Cost Differentiation
B
r
o
a
d

Cost leadership Differentiation
M
a
r
k
e
t

s
c
o
p
e

N
a
r
r
o
w

Focus
(Low cost)
Focus
(Differentiation)
Source: Michael E. Porter, Competitive Strategy: Techniques for Analyzing Industries and
Competitors (New York: Free Press, 1980)
1. Cost Leadership Strategy
Any enterprises applying this model, they focus on producing standardized products and
sell products with a very low per-unit cost to consumers. This will attract consumers who
are sensitive to price. The strategy can be used to target at large markets. Firms can use
either a low-cost strategy or a best-value strategy. For a low-cost strategy, firms offer

products or services to customers at the lowest price compared to rivals on the market. For
a best-value strategy, firms offer products or services to customers at the best value
compared to rivals price at similar attributes of products on the market.
If a firm has a low-cost position, it will gain more returns although there are many strong
competitors in the industry. To achieve a low-cost position, firms are required to a high-
relative market shares or other advantages. The firms should produce relative products;
design an easy product to manufacture, and to sell in large volumes (Porter, 1998).
This strategy is effective as a market has many price-sensitive buyers. And there are few
ways to design product differentiation or customers do not care about differences between
brands, or there are a lot of buyers with powerful bargaining ability.
By underpricing competitors, this will thereby gain market share and sales and then driving
some competitors out of the market.
Companies applied cost leadership strategy must have competitive advantages that are
valuable, rare, hard to imitate, or not easily substitutable and difficult for competitors to
copy or match. If competitors find it easy or inexpensive to imitate the leaders cost
leadership methods, the leaders advantage will not last long to yield a valuable advantage
in the marketplace.
In order to apply a cost leadership strategy successfully, a company must ensure that its
total costs of its whole value chain are lower than competitors. There are two ways to
accomplish it. (1) Value chain activities are more efficiently than rivals. They are the plant
layout, new technologies, different products, product design, year-round full capacity, and

so on. (2) Reducing or eliminating cost-producing activities. They are suppliers,
distributors, products online sales, manufacturing facility relocation, and so on.
Cost leadership strategy can be effective under the following conditions:
1. Price competition among rivals is especially powerful
2. Products of rivals are identical
3. Few ways to achieve product differentiation
4. Most customers use the product in the same ways
5. Low switching costs
6. A lot of customers with bargaining power
7. Newcomers use low prices to attract buyers
2. Differentiation Strategy
Firms using the model will produce differentiated products and services. And products can
be many degrees of differentiation. They can be different in design, brand image,
technology, features, customer service, dealer network, product performance, useful life,
ease of use and so on.
A firmmust be careful to study buyers needs and preferences to determine the feasibility
before pursuing the differentiated strategy. And a firm can charge a higher price for its
differentiated product and to gain customer loyalty.
A risk of differentiation strategy is that products are not be valued good enough by
customers. When this happens, a cost leadership strategy easily will defeat a differentiation

strategy. Moreover, another risk of pursuing a differentiation strategy is that competitors
may quickly copy the differentiating features.
Differentiation opportunities can be developed anywhere in the firms value chain such as
supply chain activities, product R&D activities, production and technological activities,
manufacturing activities, human resource management activities, distribution activities, or
marketing activities.
The differentiation strategy can be effective in the following conditions:
1. There are many ways to differentiate products or services and many buyers
perceive these differences as having value
2. Buyer needs and uses are diverse
3. Few rival firms are following a similar differentiation approach
4. Technological change is fast
3. Focus Strategy
Firms applying the model will produce products and services to serve a particular group of
consumers. They aim at small markets. There are two types of focus strategies. (1) Firms
offer products or services to a niche group of customers at the lowest price compared to
rivals on the market. (2) Firms offer products or services to a niche of customers at the
best value compared to rivals price on the market. This will help to offer best value
products or services to meet customers tastes better than rivals do and the price can be
higher than rivals.

If firms apply a focus strategy, they just concentrate on a narrow market like particular
group of customers, geographic markets, or on particular product-line segments. They will
serve customer in the narrow market better than competitors or choose a target with least
vulnerable to substitute. A successful focus strategy depends on an industry segment of
sufficient size, good growth potential. Market penetration and market development are
advantages. If midsize and large firms pursue focus-based strategies together with
differentiation or cost leadership strategies, they will get more chance for success.
Moreover, focus strategies are most effective as consumers have distinctive preferences;
and rival firms do not intend to focus on the same target segment.
However, there are risks when firms pursue a focus strategy. Competitors will recognize
the successful focus strategy and copy it or consumer preferences will be changed.
A focus strategy can be attractive under the following conditions:
5. Target market niche is large, profitable, and growing
6. Industry leaders do not consider the niche to be crucial to their own success
7. Industry leaders consider it too costly or difficult to meet the specialized needs
8. Industry has many different niches and segments
9. Few rivals are attempting to specialize in the same target segment

II. Examples of Cost Leadership Strategy
Example 1: Reetech air-conditioner uses cost leadership strategy for its development. It
offers a lowest price for every segment in the market. For example, with product line of 1.5
hp, Reetech RT12-CH/RC12-CH is selling at VND6,900,000 while Daikin FTE35KV1 at
VND8,900,000, LG S12ENA at VND8,490,000, and SHARP AH-A12PEWS at
VN,300,000.
Example 2: Also in motorcycle industry, SYM used cost leadership strategy. Its products
price is cheapest on the market. It is the third large motorcycle manufacturer in Vietnam in
terms of market share and revenue. Every segment, rivals product such as Wave of Honda,
Sirius of Yamaha and X-bike of Suzuki, SYMs EZ10 offers the cheapest price.
Example 3: On Oct 29, 2013, Haier brand surprisingly announced its quad-core smart
phone just VND2,000,000. Haier is a famous consuming electronics company. Haier
smartphones for Vietnam market in this event have strong CPU at quad-core 1.2 Ghz. With
the same CPU, other brands like Samsung, LG, Nokia, Sony have a higher price. Haier is
the new entrance, so it applies cost leadership strategy to enter the smartphone market.
Because it enters the market late, so if there are no any differentiated features, Haier has to
use cost leadership strategy to enter. It is the right strategy for the late entrance.
Example 4: Wal-Mart is a giant in retail in the USA. Wal-Mart is a pioneer in supply chain
management. Its distribution channels are managed efficiently and effectively. It controls
manufacturing, inventory, and distribution effectively. Besides, It always offer the lowest
price compared to rivals. Because Wal-Mart buys with a huge volumes fromsuppliers,
Wal-Mart often gain the best prices.

Example 5: Within product line of cheap LCD TV, TCL applies cost leadership strategy.
Its selling price is cheapest on the market. TCL LCD 32B330s price is VND4,700,000
while Panasonic LCD 32C4 at VND5,000,000, LCD Toshiba 32HV10 at VND4,9000,000,
and LG 32LK312 at VND4,900,000.
Example 6: In the auto industry, small cars with cheap price are consuming increasingly
these years in Asian countries. Manufacturers in Thailand and Indonesia are pushing their
plans to produce small cars with cheap price for the region (M Anh, 2013). On Vietnam
market, Chevrolet is applying cost leader ship strategy for its product of small cars. Selling
price of Spark is cheapest on the market. Its price is VND 349,000,000 while Kia Morning
is VND 365,000,000, Hyundai i10 at VND 380,000,000.

Spark
VND349,000,000
Kia Morning
VND365,000,000
Hyundai i10
VND380,000,000

Example 7: Also in air-conditioner industry, LG uses cost leadership strategy (best-value
strategy) for its development. For example, with product line of 1.5 hp, LG S12ENA offers
a price at VND8,490,000 higher than Reetech RT12-CH/RC12-CH at VND6,900,000, but
LG offers more features and benefits than its rivals. LG provides 3-layer filter and ability
of automatic cleaning while its rivals offer 1-layer filter only. Beside, LG offers more 12-
month warranty if buying fromOct to Nov 2013, meaning 2-year warranty in total more
than its rivals.

Example 8: Acer is one of largest PC manufacturers in the world. Its markets are around
the world. Its PC products are selling at the lowest price compared to rivals. Acer uses cost
leadership strategy to a large range of customers (Taylor & Nichols, 2010, p.27). Acer uses
cost leadership strategy. With the same features, Acer laptops are always cheaper than its
rivals. For example, ACER E1 is selling at VND 6,990,000 equally to HP CQ45 and lower
than Lenovo G400. However, ACER E1 531 offers bigger screen at 15.6 inches and HDD
at 500GB more storage capacity than HP CQ45s HDD at 320 GB only. It brings more
features and benefits to buyers than rivals do. This strategy gives Acer a competitive
advantage in gaining and maintaining its market shares.
ACER E1 531 HP CQ45 Lenovo G400
CPU
Intel, Pentium, B960,
2.20 GHz
Intel, Pentium, B960,
2.20 GHz
Intel, Pentium,
2020M, 2.40 GHz
RAM DDR3, 2 GB DDR3, 2 GB DDR3, 2 GB
HDD HDD, 500 GB HDD, 320 GB HDD, 500 GB
Screen 15.6 inch, HD 14 inch, HD 14 inch, HD
PIN/Battery Lithium-ion 6 cell Lithium-ion 6 cell Lithium-ion 6 cell
Price VND 6,990,000 VND 6,990,000 VND 7,070,000

Example 9: P&G applied cost leadership strategy for its development. It produces many
related products and variety of line products for customers. We can see shampoos Pantene
(P&G) and Dove (Unilever). Price of Pantene is lower than Dove. P&C is aiming the cheap
detergent Tide Simply Clean and Fresh and it will be launched in 2014 (Thy An, 2013).
Example 10: In motorcycle industry, manufacturers coming form Japan, Suzuki follows the
cost leadership strategy. The selling price always is lowest compared to products with the
same features fromHonda and Yamaha.


Suzuki Hayate 125
VND21,500,000
Honda Air Blade Fi
VND35,500,000
Yamaha Nouvo SX
VND33,000,000

Example 11: Also in the auto industry, Hyundai Elnatra is directly competing Corolla Altis,
Honda Civic, Ford Focus, Kia K3, and Mazda3. Selling price of Hyundai Elnatra is
VND726,000,000. It is cheaper than others such as Honda Civic at VND 725,000,000,
Focus at VND689,000,000. Its price is just higher than Kia K3 at VND638,000,000.
However, Hyundai Elnatra offers more feature than other competitors. Hyundai Elnatra
follows cost leadership strategy. It is charged higher price than Kia K3 but it offers more
feature. It brings more benefits for buyers. As we can see that although its price is lowest,
its features are more than its rivals as below.

Source: Thegioibonbanh.com

Example 12: Samsung uses cost leadership strategy for its product line of LED TV with
selling price under VND7,500,000 in Vietnammarket.

LED Samsung
UA32F4100
LED LG
32LN541B
LED Sony
32R402A
LED Toshiba
32P2300
- LED 32 inches
- HD 1366 x 768
- CMR 100 Hz
- HDMI x 2
- USB x 2
- 2-year warranty
- LED IPS 32 inches
- HD 1366 x 768
- USB
1-year warranty
- LED 32 inches
- WXGA1280 x 720
- XR 100 Hz
- HDMI x 2
- USB x 1
- 2-year warranty
- LED , 32 inches
- HD 1366x768
- ARM 100 Hz
- HDMI x 3
- USB x 1
1-year warranty
VND7,190,000 VND6,800,000 VND6,900,000 VND6,290,000

As we can see although selling price of Samsung is highest at VND7,190,000, Samsung
offers more features than its rivals (Toshiba and LG) such as 2- year warranty. Beside,
Samsung offers electric saving and friendly environment ability while its rivals do not.
Within the price range, Samsung offers more features and create more value for its
customers.

Example 13: In the fast food section, Jollibee in Vietnam pursues the cost leadership
strategy. Jollibee offers the lowest price on the market. It targets a mass market in Vietnam
with a menu variety and cheapest price. To gain the success on the market, Jollibee applied
the formula of FSC: Food quality, Service and Cleanliness to compete with giant rivals.
Example 14: In the beer section, Sabeco uses the cost leadership strategy for its 333 canned
beer. The selling price of 333 is lowest on the market. It targets mid-low incomers. The
products can be consumed in the whole of Vietnam including big cities and towns of
provinces.
Example 15: Media Vietnam is a Chinese electronics company. It operated a manufacturer
in Vietnam in 2007. Its products are accepted by Vietnamese customers. With the cheapest
price of products on the market, Media Vietnam gradually gains customers belief.

Products sold in Vietnam is manufactured in Vietnam, so Media product cost is low.
Taking the advantage, Media Vietnam offers the lowest price for its products to compete
successfully on the market.

III. Examples of Differentiation Strategy
Example 16: Apple uses differentiation strategy in doing business. Apple uses its own
platformfor its products lines. Iphones go with iOS; Ipads go with iOS; and Macbook
Laptops go with Mac OS. The platforms are coded by Apple themselves. And hardwares of
the devices are designed and manufactured to use their own software. So their perfect
compatibility makes Apples devices run smoothly. Until now competitors have not
imitated. Apple brings more benefits and satisfaction for its customers and gains
customers loyalty through the differentiation strategy.
Example 17: In order to gain customers loyalty and increase revenue and market shares,
ASUS provides 2-year warranty for its laptop more while others just provide 1-year
warranty. In 2011 ASUS decided to offer a programof home warranty in Vietnam market
(Asus, 2011). By this differentiation strategy, ASUS will gain more advantages compared
to its rivals. It added more feature and improve service quality to serve consumers better.
Example 18: Samsung is directly competing Apple in the smart phone industry. In order to
attract more customers and gain market shares, Samsung use the differentiation strategy in
its innovated products development. For example, Galaxy Note 3, S-Pen was designed and
attached to the Galaxy. It is a stylus but more convenient and smarter. Moreover, wider
screen of Galaxy Note 3, higher pixel camera, and longer battery make a big differentiation
compared to other rivals products.
Example 19: In real estate sector, GS E&C, a Korean developer, uses the differentiation
strategy to develop the residential project named Xi Review Palace in HCMC. The project
is a hi-end apartment. It is differentiated with other projects. Its design is very good as only

four units per floor while others at six or eight or twelve units. New technology was
installed in the apartment. It is called Home Network System. Owners can turn on/off gas
and lights outside their apartment. Moreover, its management service is the best compared
to others such as good security, quick response, cleanness, profession. Buyers of Xi are
satisfied with their apartments. And of course the selling price is in top five highest selling
price in HCMC.
Example 20: Vnexpress.net pursues a differentiation strategy. The electronic newspaper is
very famous in Vietnam. It serves readers who can use the internet for seeking news.
Vnexpress.net does not provide a printed copy like other newspapers such as Tuoitre,
Thanhnien. Just with a PC, a laptop, or a smartphone or a tablet, readers can read news on
Vnexpress.net free at at any time and any where.
Example 21: Th Gii Di ng is one of famous retailers in electronics in Vietnam. It is a
good example of differentiation strategy in brand identity. It uses two main colors: deep
yellow together with black to differentiate itself fromrivals. The colors are on staff
uniforms that showing its professional selling. Further more, the two colors are on its
billboards, main gates, walls, bags, website, and shelves used for displaying products.
Example 22: Heineken beer is positioned for high income users. It serves a small market of
rich people. The selling price is higher than other brands such as Tiger beer, 333 beer,
Sapporo beer. Its flavor tastes better than others. It show stylish image for users. Heineken
beer uses strategy of differentiation.

Example 23: Metro Cash & Carry Vietnamis a good example of a differentiation strategy.
The Metro just focuses on customers who are enterprises. Unlike other rivals such as Big
C, Co-Op Mart concentrates on individuals. Moreover, the Metro targets huge volume of
customers every time they go shopping.
Example 24: Sony applies the differentiation strategy. Whenever hearing Sony, customers
recognize durable, good brand image, and high price products. Sony follows the
differentiation strategy. Recently, Sony provides variety of products to serve all segments
but Sony still keeps its famous identity of differentiation in terms of brand image,
durability, and high price.
Example 25: Honda is very popular to Vietnamese. Honda motorcycles are considered
durability, and they are not decreased value much when customers want to re-sell their
motorbikes. Honda uses the differentiation strategy. Honda differentiates itself via
providing good products and keeping the value of products to secure customers.
Example 26: Lexus is a brand of Toyota Motor Company. It is a famous for luxury cars. Its
rivals are BMW and Mercedes-Benz. Lexus is a perfect example for a focus strategy.
Lexus is positioned for a group of rich people. Both a differentiation and a low cost
leadership strategy are applied. Toyota offers the same benefits as competitors but lowest
price for its Lexus on the market.
Example 27: Mercedes-Benz is famous for luxury cars. It focuses on a narrow market and
gets huge profit margins at the hi-income and upscale segment. A best-value focus strategy
is used. On the market, selling price of Mercedes-Benz is charged higher than Toyota

Lexus with the same basic features, but offers more advanced technology and design for
customers.
Example 28: Sao Bac Dau Company pursues the differentiation strategy. Sao Bac Dau
focuses on providing excellent package services of information technology for its
customers. Unlike PhongVu Company, HoanLong Company, and others, Sao Bac Dau
targets at small segments of enterprises that needs a whole package of information
technology equipments such as PCs, laptops, servers, hubs, installations, and complex
service of IT. Sao Bac Dau differentiates itself via its complicated technical skills and
quality of services.
Example 29: Phuong Trang Transportation Company follows the differentiation strategy. In
long-distant transportation, it differentiates itself with rivals via service quality. The selling
price of tickets is the same as competitors but the service of transport is better. It provides
shuttle buses to pick up clients to and fromtheir home. Beside, service attitude of staff is
better than rivals. They are friendly and helpful. Clients are happy and Phuong Trang is
very successful in gain loyalty of customers.
Example 30: Pho 24 is famous with Vietnamese. It pursues the differentiation strategy. It
offers a modern, youth, luxury atmosphere for consumers. Consumers always feel
comfortable whenever in Pho 24 restaurants with friendly staff, professional service, and
good food. Its consumers are office servants, managers, CEO, etc with higher income.

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