Michael Porter suggested that businesses can secure a sustainable competitive advantage by adopting one of three generic strategies. They form a competitive advantage by catering for the specific needs and wants of their niche market. Some businesses will attempt to adopt all three strategies; cost leadership, differentiation and niche (focus).
To create a competitive advantage businesses should review their strengths and pick the most appropriate strategy cost leadership, differentiation or focus. The organisation aims to drive cost down for all production elements from the sourcing of materials, to labour costs. Porter asserts that businesses can stand out from their competitors by developing a differentiation strategy. Examples include Roll Royce, Bentley and Saga a UK company catering for the needs of people over the age of 50.


Although each of these strategies are known as generic strategies (because they can be applied to every industry) they will not suit every business.
With a differentiation strategy the business develops product or service features which are different from competitors and appeal to customers including functionality, customer support and product quality.
Once a firm has decided which market segment they will aim their products at, Porter said they have the option to pursue a cost leadership strategy or a differentiation strategy to suit that segment.
For example small businesses may find it difficult to generate the economies of scale needed for broad scope cost leadership but a smaller customer base may enable them to offer a personalised service through a narrow scope focus strategy. Large scale production means that the business will need to appeal to a broad part of the market.
A focus strategy is known as a narrow scope strategy because the business is focusing on a narrow (specific) segment of the market. This is likely to increase running costs and cause confusion, as it is difficult to please all sectors of the market.


Conversely a larger business may not be able to generate sufficient revenue through a focus strategy but be able to pursue aggressive broad scope cost leadership because of the size of the business.
Middle of the road businesses usually do the worst in their industry because they are not concentrating on one business strength.
Whatever strategy a business decides to adopt they should make sure that it isn't middle of the road because one business can not do everything well.



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