Porter's Generic Strategies: Low Cost, Differentiated & Focus

An error occurred trying to load this video.

Try refreshing the page, or contact customer support.

Coming up next: Practical Application: Porter's Generic Strategies

You're on a roll. Keep up the good work!

Take Quiz Watch Next Lesson
Your next lesson will play in 10 seconds
  • 0:03 Low Cost,…
  • 0:41 Strategic Advantage
  • 2:09 Strategic Focus
  • 3:11 Avoid Being Stuck in…
  • 3:53 Lesson Summary
Save Save Save

Want to watch this again later?

Log in or sign up to add this lesson to a Custom Course.

Log in or Sign up

Speed Speed Audio mode

Recommended Lessons and Courses for You

Lesson Transcript
Dr. Douglas Hawks

Douglas has two master's degrees (MPA & MBA) and a PhD in Higher Education Administration.

Expert Contributor
Steven Scalia

Steven completed a Graduate Degree is Chartered Accountancy at Concordia University. He has performed as Teacher's Assistant and Assistant Lecturer in University.

Michael Porter, author of 'Competitive Advantage,' suggested in 1985 that all companies pursue one of three general strategies. In this lesson, we'll learn what those strategies are and when each is appropriate to use.

Low Cost, Differentiation, and Focus

Business professor and strategist, Michael Porter, wrote the book Competitive Advantage: Creating and Sustaining Superior Performance in 1985. In this book, Porter presented his readers with the idea that companies pursue one of four generic strategies based on their strategic target and their strategic advantage. These strategies include:

  • Cost leadership strategy
  • Differentiation strategy
  • Focus strategy
  • Combined cost leadership and differentiation strategy

You can take a look at this matrix to make sense of what Porter was suggesting:


Strategic Advantage

According to Porter, companies could find a strategic advantage by pursuing either a low-cost strategy or a differentiation strategy. A low-cost strategy is when a company attempts to offer goods or services that are comparable to their competitors, but at a lower cost. You don't have to look further than your local Walmart to see an example of a low-cost strategy. Walmart's strategy is based on offering the lowest cost.

The low-cost strategy isn't always the best strategy, and not all companies use it. One company that does so successfully is Apple. If you've ever bought one of its products, you may have noticed it was significantly more expensive than a similar phone, tablet, or computer. For many customers, the Apple brand is unique and offers important, unique benefits over the competition, so they're willing to pay those prices. As such, the company is employing a product differentiation strategy, or how unique customers view goods and services.

On Porter's model of generic strategies, the horizontal axis is the degree to which a company pursues a low-cost or a differentiation strategy. It's important to note this isn't an either/or decision. Companies can have strategies that are a combination of low-cost and differentiation strategies. Consider some of the tablets made by Samsung. They aren't as low-cost as some of the competitors, but they aren't as unique as Apple's iPads, which places them in the middle of the strategic advantage scale.

Strategic Focus

In addition to choosing a strategic advantage, companies select a target market. A target market is a group of consumers a company views as potential customers and can either be industry-wide or focused on a particular segment.

Companies pursuing an industry-wide focus offer goods and services that are useful to an entire market. For instance, the iPad appeals to a broad market in that it meets the needs of students, professionals, gamers, readers, and even young children. By contrast, the Microsoft Surface aims to be more of a laptop replacement and is targeted more towards working professionals. While Apple's iPad may have more of an industry-wide focus, the Microsoft Surface has a particular segment focus.

To unlock this lesson you must be a Study.com Member.
Create your account

Additional Activities

Porter's Generic Strategies - A Practical Exercise:

The following exercise is designed to help students apply their knowledge of Michael Porter's generic strategies in real-life situations.


Below are examples of companies and their position within their industry.

1. Nespresso: Nespresso is the new industry leader for coffee machines and capsules. Nespresso's premium coffee paired with an exceptional line of machines results in its coffees being recognized for their particular (and preferred) flavor. Nespresso's brand has grown so much that some customers are skipping coffee shops like Starbucks all together so that they can enjoy their high-quality Nespresso at home.

2. Costco: Every year for the past decade, Costco has shattered record after record for its number of subscribers. Costco's offering is fairly simple: Customers pay a single amount for an annual subscription and, in exchange, can find many household items in bulk at very low prices that cannot be beaten by their competitors.

3. Snapchat: Snapchat has taken the social media market by storm by specifically building their product for teenagers between the ages of 12 and 18. This key portion of the social market has allowed Snapchat to collect data on a specific market segment while building a strong brand reputation with its customers.


For each of these companies, determine which of Porter's generic strategies is most applicable.


1Product Differentiation
2Low-cost Strategy
3Focus Strategy

Register to view this lesson

Are you a student or a teacher?

Unlock Your Education

See for yourself why 30 million people use Study.com

Become a Study.com member and start learning now.
Become a Member  Back
What teachers are saying about Study.com
Try it risk-free for 30 days

Earning College Credit

Did you know… We have over 200 college courses that prepare you to earn credit by exam that is accepted by over 1,500 colleges and universities. You can test out of the first two years of college and save thousands off your degree. Anyone can earn credit-by-exam regardless of age or education level.

To learn more, visit our Earning Credit Page

Transferring credit to the school of your choice

Not sure what college you want to attend yet? Study.com has thousands of articles about every imaginable degree, area of study and career path that can help you find the school that's right for you.

Create an account to start this course today
Try it risk-free for 30 days!
Create an account