Porter's generic strategies

In one paragraph

Porter's claim that there are only three ways to win: be the lowest-cost producer, be meaningfully different, or serve a narrow segment extremely well.

Cost leadership — compete on being the lowest-cost producer, which lets you either undercut or take more margin at the same price. It requires scale, efficiency and relentless cost discipline. Note it is about *cost*, not price.

Differentiation — be different in a way customers value enough to pay more for: brand, quality, design, service, speed.

Focus — apply either of the above to a narrow segment rather than the whole market. Most small businesses that succeed are doing focused differentiation, whether they call it that or not.

Stuck in the middle

Porter's contentious claim is that trying to be both cheapest and most differentiated leaves you with the cost base of one and the prices of the other — competitive on neither. Businesses arrive here by drift rather than decision: adding service to justify price, then discounting to win work, until neither story is true.

The useful test: if a customer asked why they should choose you rather than the cheap option *and* rather than the premium option, could you answer both without contradicting yourself?

How to actually use it

• Say which one you are, out loud, and check your pricing and your costs agree with it. Most stuck-in-the-middle businesses will not say the word 'cheapest' and will not charge like a premium provider either.
• For a small firm, focus is usually the realistic answer. You cannot out-scale a national competitor; you can be obviously the best choice for one kind of customer.

Where it breaks down

• The 'stuck in the middle' claim is disputed — plenty of firms achieve low cost and differentiation together, and lean manufacturing was largely about doing exactly that.
• Generic strategies say nothing about how to build the capabilities each one needs.

If you are being examined on it

Identify the strategy from the evidence, then test whether the business's actual decisions are consistent with it. The inconsistency is where the analysis marks are.

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