According to Michael Porter, what are the three broad means to view a business's strategy? Why do firms use a combination of these strategies?

Question

What will be an ideal response?

Answer 1

Michael Porter suggests that there are three broad means to view a business's strategy: low cost, differentiation, or focus. A low-cost strategy is one where the firm seeks to be the lowest-cost competitor in the industry. A differentiation approach is one where the firm finds a unique position in the market through product, service, location, and the like. A focus approach seeks to craft a business around a small set of customers, specialty products, or a small geographic approach. Porter goes on to argue that firms can combine their focus approach with one of the other strategies; thus, there could be a focus differentiation or a focus low-cost strategy. As a practical matter, most new firms pursue a combination of these broad categories. The result is a value strategy in which some combination of cost and differentiation is employed as the firm seeks to serve a focus population of some type. A key reason for this combined strategy is that a new business is only rarely the absolute lowest-cost competitor in an industry (especially in an industry that is well established). Similarly the new business will also find it difficult to be differentiated along all dimensions of a product or service (and actually may not really wish to be). A value strategy that mixes cost and differentiation can also help a firm evolve its strategy as its industry changes.