Although a company may have millions of strengths and weaknesses compared to its competitors, there are two basic types of competitive advantages a company can possess: low cost or differentiation.

The two basic types of competitive advantage combined with the panorama of activities for which a company tries to achieve them, leads to three generic strategies for achieving above average performance in an industry: cost leadership, differentiation and focus.

Each of these generic strategies involves a different route to competitive advantage at a time which depends on the scenario of strategic targets. The strategies of cost leadership and differentiation seeking competitive advantage in a wide range of industrial sectors, while strategies try to achieve focus on a narrow segment.

The idea behind the concept of generic strategies is that competitive advantage is at the heart of any strategy, and achieving competitive advantage requires a company to make a choice about the kind of advantage that seeks to achieve and the landscape within which do it. Being “all for all” is a recipe for strategic mediocrity and the below average performance, because in reality means that there is no competitive advantage at all.

COST LEADERSHIP

Involves proposed to be the producer or provider of a service more cheaply in the sector. Understood cost to the monetary value of all goods and efforts incurred to provide a service or obtain a finished product. The company aims to costs has a broad overview and serves many segments and can even operate in fields related to yours.

The sources of cost advantage are varied and depend on the industry structure. May include preferential access to raw materials, proprietary technology, the pursuit of economies of scale and others.

Companies that work with low cost typically sell a standard, or product / service without ornaments and placed considerable emphasis on the scale of maturity. If a company manages and maintains the overall cost leadership will be an above average performer in a sector as long as their prices are at or near the average for that sector. At equivalent or lower prices of rivals this position translates into higher returns, but this leadership can not ignore the bases of differentiation. If a product is not perceived as comparable or acceptable to buyers, a cost leader will be forced to discount prices well below their competitors to make sales.

The strategic logic of cost leadership usually requires that a company is the leader in costs, and not one of several companies fighting for this position. When more than one aspiring cost leader, rivalry is usually hard for every point of market share is considered crucial. Unless a company can achieve cost leadership and persuade others to abandon their strategies, the utility consequences can be disastrous.

Differentiation

In a differentiation strategy, a company seeks to be unique in an industry with some qualities widely valued by buyers. Select one or more attributes that many buyers perceive as important and exclusive places to meet those needs. The rewards of its uniqueness is a higher price. The sources for differentiation are particular to each sector. It can be based on the product or service itself, the delivery system through which it is sold, the marketing approach and a wide range of other factors.

A company can achieve and sustain differentiation will be an above average performer in the sector, if the price premium exceeds the extra costs incurred to be unique. A differentiation can not ignore its cost position because the higher price would be offset by a competitor with a markedly inferior cost position. So try to close as a differentiator from its competitors costs, reducing all other areas that do not affect differentiation.

A company must be truly unique or perceived as something only if you want a higher price. In contrast to cost leadership may be more than one successful differentiation strategy in a sector if there are several attributes that are widely valued by buyers.

APPROACH

This strategy is very different from the others because it relies on the choice of a narrow view of competition within an industry. The “focused” select a group or segment and adjust its strategy to serve them to the exclusion of others. By optimizing its strategy for the target segments, it seeks to gain a competitive edge in its segment but does not have an overall competitive advantage.

The focus strategy has two variants: cost focus and differentiation focus.

Both rely on the difference between the focuses target segments and other segments. The target segments must have buyers with unusual needs. The cost approach exploits the differences in cost behavior in some segments, while differentiation focus exploits the special needs of buyers in certain segments. These differences imply that these segments are poorly served by competitors with very broad objectives those who serve them while serving others. The focuser can thus achieve competitive advantage by engaging in segments only.

A focuser takes advantage of the sub-optimization in any direction from competitors with broad objectives. Competitors may be playing down to meet the needs of a particular segment, which opens the possibility of a differentiation approach. The very large white competitors may also play above to meet the needs of a segment, which means that they are bearing a higher cost than necessary to serve you. An opportunity for cost focus may be present in just meeting the needs of a segment like this and nothing more.

If a company can achieve sustainable cost leadership or differentiation in its segment and this segment is structurally attractive, then the focuser will be an average performer on the industry. The structurally attractive segments is a necessary condition because some segments in an industry are much less profitable than others. There is often room for several sustainable focus strategies in the sector, provided the focusers choose different target segments. Most areas have a variety of segments, and each involves a different buyer need or a different optimal production and delivery as a candidate for focus strategy.

Stuck in the middle

A company that is “caught in the middle” is one that is not successful in any of the generic strategy that seeks to achieve, therefore, has no competitive advantage.

A company in this situation, will compete at a disadvantage against a cost leader, differentiator or a focuser that will better position to compete in any segment. If a company is caught in the middle discovers a profitable product or buyer, competitors with a sustained competitive advantage quickly removed it.

The only two ways for a company caught in the middle can survive making a profit is to a highly favorable industry or if it falls in a sector where all competitors are stuck in the middle. However, usually a company like this will be much less profitable than those that achieve a competing generic strategies.

Being stuck in the middle is often the manifestation of a company’s refusal to make choices about how to compete. Seek competitive advantage by all means and not achieved, because the different types to achieve competitive advantage usually requires inconsistent actions.

The temptation to blur a generic strategy, and thus get caught in the middle, is particularly great for a focuser once it has dominated its target segments.

The approach involves deliberately limiting potential sales volume. Success can lead to a focuser to lose sight of the reasons for its success and compromise its focus strategy for growth. Rather than compromise their generic strategy, a company is often better off finding new industries in which to grow and to use its generic strategy again or exploit relationships.