Porter's Generic Strategies A generic strategy is a strategy of a particular type or form designed to promote a lasting competitive advantage for

an organisation. Porter (1980) identified three generic strategies that organisations could use to achieve competitive advantage. He argued that it was important for organisations to be clear about which strategy was being followed and that lack of a clear strategy could result in muddle and confusion. Porter's generic strategies are cost leadership differentiation, and, focus

Cost leadership This strategy involves an organisation becoming the lowest cost provider in an industry. Porter's logic for this strategy is that if a firm can charge industry-average prices, but sustains below industry-average costs it will be an above average performer. Differentiation A differentiation strategy is where an organisation seeks product uniqueness. It will attempt to establish real (by product design) or perceived (by advertising) differences between its products and those of its competitors so that a premium price can be charged without loss of customers. Porter's logic for this strategy is that an organisation will be an above industry-average performer if the price premium exceeds the extra costs of providing differentiation. Focus

A focus strategy occurs where strategy is tailored towards a particular market segment rather than to the whole market and may take the form of cost focus or differentiation focus. Problems with Porter 1 Poon (1993; 239) concludes that "Porter's generic strategies have little value in today's tourism industry." Poon identifies four principles for an effective tourism strategy: be a leader in quality develop radical innovations put customers first strengthen the firm's strategic position within the value chain However these principles can be accommodated in an adapted version of Porter, and price remains an important part of strategy which Poon ignores. Problems with Porter 2 Cost leadership is a problematic concept for several reasons. First, many of the routes to lower costs are easily followed by competitors and therefore leadership may be elusive. It is perhaps only where a firm can achieve economies of scale by market leadership that costs may be reduced without compromising the quality of output. Second, where cost leadership is achieved by stripped-down products, consumers are unlikely to pay industry-average price. Price may well follow costs down thus reducing any extra margins. Third there is a tendency for Porter to use the terms cost and price interchangeably. But they are very different terms - the first measuring input costs (paid by firms) and the second measuring market prices (paid by consumers). Problems with Porter 3

Differentiation may be misinterpreted by managers as being merely a matter of improved technique of production. What is more important in terms of selling a product or service is the notion of consumer perception - does a particular product offer improved quality or value added over the competition in the eyes of the consumer? Bowman (Bowman & Faulkner, 1995) and Johnson et al. (2008) et al. have sought to rework Porter's typology of generic strategies to take into account some of the issues raised above. have sought to rework Porter's typology of generic strategies to take into account some of the issues raised above.

Price-based strategies Price-based strategy is similar to cost leadership, but emphasises the fact that low costs are passed on to the customer in the form of lower prices. Products are thus likely to be standardised, and unnecessary but costly extras will have been stripped away. Value chain analysis can be a useful tool for highlighting extras which can be removed (eg. Ryanair) Differentiation-based strategies This is similar to Porter's differentiation strategy, but with an emphasis on providing extra qualities which are valued by the consumer. This value added may be provided by: design exploitation of the value chain advertising Hybrid strategies

A hybrid strategy is an attempt to provide quality products and services at low prices. It seems contradictory because adding value adds to costs which should preclude low prices. The key to a successful hybrid strategy is therefore to reduce average costs. The first route to this is achieving of economies of scale. Economies of scale are therefore open to firms which can achieve high market share, and a virtuous circle may become established. The second route, important to service providers such as tourism organisations, is to ensure high load factors. Virgin Blue is an example of an airline following a hybrid strategy. Virgin Blue operates in Australia and describes how Unlike traditional no frills low-cost carriers, Virgin Blues approach is to offer consistently affordable fares, outstanding service and a host of other options available on a pay for use basis (Virgin Blue, 2008) Price-based and differentiation strategies may each be focused on a particular market segment and it is increasingly common for organisations to seek to serve a number of different market segments.