<< Chapter < Page Chapter >> Page >

Michael Porter developed two other tools that are widely used by organizations in their approach to markets: Three Generic Strategies and the Value Chain .

Porter postulated that a firm should adopt only one of three generic strategies. They are illustrated in :

A diagram showing how strategic advantage and strategic target affect differentiation, focus, and overall cost leadership.
Source: (External Link)

A firm can choose to be the low cost producer for a wide segment of the market; it can offer a differentiated product for a wide segment that customers are willing to pay more for because of its perceived greater value; or it can focus on a market niche as a low cost producer or with a differentiation strategy. For example, the original Volkswagen automobile focused in a broad low-cost market. As a matter of fact, the word in German means “Peoples Car”, indicating it was meant to be affordable by everyone. A good example of a differentiated automobile is the BMW. People pay more for a BMW because of the “conspicuous consumption” or “luxury badging aspects” they have managed to create in peoples’ minds, not necessarily because the BMW is actually worth 30 per cent more than a comparable automobile from Cadillac or Nissan. An example of a car positioned towards a low cost niche is the Mazda Miata, a two-seat sports car that costs much less than comparable cars. Finally, you can consider the Hummer as a car that appeals to a differentiated market niche.

Porter’s other widely-used tool is the Value Chain, which is used to model the firm as a chain of value-creating activities or processes. Porter identified a set of interrelated generic processes common to a wide range of firms. He divided them into primary activities and support activities, as illustrated in [link] .

Firm infrastructure, human resources management, technological development, and procurement, grouped with inbound logistics, operations, outbound logistis, marketing and sales, and service. This all meets at the margin.
Value chain
Source: (External Link)

The primary activities in the value chain are: inbound logistics, operations, outbound logistics, marketing and sales, and service. The support activities are procurement, technology development and research and development, human resource management, and firm infrastructure (top management). The primary value chain activities are interrelated, to the extent that they can be formed with high quality and low cost, the firm will be able to have value-added that will be returned to the firm as profit. As an example of the way that primary value activities are interrelated, suppose that the inbound logistics process does not do well in identifying raw materials of poor quality. This will cause problems with the next process, operations, and it may cause problems as far down the value chain as service after the sale. The value chain is, thus, a useful tool for analysing a company’s business processes and searching for ways to lower costs, improve efficiency or search for process innovations.

Other strategic models

There are many other strategic models used by companies to help them formulate their overall business and marketing strategies. Three of best known models are the Boston Consulting Group (BCG) Matrix, the McKinsey Matrix, and Larry Downe three forces. Each of these models is described below.

Questions & Answers

I only see partial conversation and what's the question here!
Crow Reply
what about nanotechnology for water purification
RAW Reply
please someone correct me if I'm wrong but I think one can use nanoparticles, specially silver nanoparticles for water treatment.
what is the stm
Brian Reply
is there industrial application of fullrenes. What is the method to prepare fullrene on large scale.?
industrial application...? mmm I think on the medical side as drug carrier, but you should go deeper on your research, I may be wrong
How we are making nano material?
what is a peer
What is meant by 'nano scale'?
What is STMs full form?
scanning tunneling microscope
how nano science is used for hydrophobicity
Do u think that Graphene and Fullrene fiber can be used to make Air Plane body structure the lightest and strongest. Rafiq
what is differents between GO and RGO?
what is simplest way to understand the applications of nano robots used to detect the cancer affected cell of human body.? How this robot is carried to required site of body cell.? what will be the carrier material and how can be detected that correct delivery of drug is done Rafiq
what is Nano technology ?
Bob Reply
write examples of Nano molecule?
The nanotechnology is as new science, to scale nanometric
nanotechnology is the study, desing, synthesis, manipulation and application of materials and functional systems through control of matter at nanoscale
Is there any normative that regulates the use of silver nanoparticles?
Damian Reply
what king of growth are you checking .?
What fields keep nano created devices from performing or assimulating ? Magnetic fields ? Are do they assimilate ?
Stoney Reply
why we need to study biomolecules, molecular biology in nanotechnology?
Adin Reply
yes I'm doing my masters in nanotechnology, we are being studying all these domains as well..
what school?
biomolecules are e building blocks of every organics and inorganic materials.
anyone know any internet site where one can find nanotechnology papers?
Damian Reply
sciencedirect big data base
Introduction about quantum dots in nanotechnology
Praveena Reply
what does nano mean?
Anassong Reply
nano basically means 10^(-9). nanometer is a unit to measure length.
do you think it's worthwhile in the long term to study the effects and possibilities of nanotechnology on viral treatment?
Damian Reply
absolutely yes
how to know photocatalytic properties of tio2 nanoparticles...what to do now
Akash Reply
it is a goid question and i want to know the answer as well
characteristics of micro business
for teaching engĺish at school how nano technology help us
How can I make nanorobot?
how did you get the value of 2000N.What calculations are needed to arrive at it
Smarajit Reply
Privacy Information Security Software Version 1.1a
A canal is more of a need then a cavity
Commander Reply
what is electronic banking
Segun Reply
what does it mean business eco system?
Mohammed Reply
what is business
Abdul Reply
how can i know my business best resources, cheap and good quality
cabdi Reply
vikash rawat
jagvir Reply
entrepreneurial mobility
Manish Reply

Get the best Business fundamentals course in your pocket!

Source:  OpenStax, Business fundamentals. OpenStax CNX. Oct 08, 2010 Download for free at http://cnx.org/content/col11227/1.4
Google Play and the Google Play logo are trademarks of Google Inc.

Notification Switch

Would you like to follow the 'Business fundamentals' conversation and receive update notifications?