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Chapter5 Strategies Explained

The document outlines various types of business strategies, including integration, intensive, diversification, and defensive strategies, each with specific approaches to improve market control and competitive positioning. It also discusses Michael Porter’s Generic Strategies, which include cost leadership, differentiation, and focus strategies aimed at achieving sustainable competitive advantage. Examples are provided for each strategy type to illustrate their application in real-world scenarios.

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19 views2 pages

Chapter5 Strategies Explained

The document outlines various types of business strategies, including integration, intensive, diversification, and defensive strategies, each with specific approaches to improve market control and competitive positioning. It also discusses Michael Porter’s Generic Strategies, which include cost leadership, differentiation, and focus strategies aimed at achieving sustainable competitive advantage. Examples are provided for each strategy type to illustrate their application in real-world scenarios.

Uploaded by

jiapia13
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Chapter 5 – Types of Strategies &

Michael Porter’s Generic Strategies


1. Types of Strategies

A. Integration Strategies
Integration strategies are used to gain control over distributors, suppliers, and/or
competitors. They help companies improve efficiency, reduce costs, and gain greater market
control.

• Forward Integration: Gaining ownership or increased control over distributors or


retailers. Example: A textile manufacturer opening its own retail outlets.
• Backward Integration: Gaining ownership or control over suppliers. Example: Starbucks
acquiring coffee bean farms.
• Horizontal Integration: Acquiring or merging with competitors. Example: Facebook
acquiring Instagram to increase market share.

B. Intensive Strategies
These strategies aim to improve a firm’s competitive position with current products or
markets.

• Market Penetration: Increasing market share in existing markets with existing products
through increased promotion, pricing strategies, etc.
• Market Development: Introducing existing products to new markets or segments.
• Product Development: Introducing new or improved products to current markets to boost
sales.

C. Diversification Strategies
Diversification involves entering new industries or markets with new products. It can
spread risk and open up new revenue streams.

• Related Diversification: Entering a new but related business that complements current
operations. Example: Apple moving from computers to smartphones.
• Unrelated Diversification: Entering entirely different industries. Example: General Electric
operating in both aviation and healthcare.

D. Defensive Strategies
These are used when a firm is under threat or experiencing performance decline. The focus
is on minimizing losses.
• Retrenchment: Cutting costs or restructuring to reverse declining performance.
• Divestiture: Selling part of the company to focus on core areas.
• Liquidation: Selling all assets to exit business operations, often as a last resort.

2. Michael Porter’s Generic Strategies


Porter identified three (later expanded to five) competitive strategies that businesses use to
achieve a sustainable competitive advantage:

A. Cost Leadership Strategies (Type 1 and 2)


Firms aim to become the lowest-cost producer in the industry.
• Type 1 – Low Cost Strategy: Offers standard products to a broad audience at the lowest
price (e.g., Walmart).
• Type 2 – Best Value Strategy: Offers best value at lowest cost (e.g., Toyota offering
affordable, reliable cars).

B. Differentiation Strategy (Type 3)


Firms aim to offer unique features that are valued by customers.
Example: Apple offers innovation, design, and ecosystem integration – allowing them to
charge premium prices.

C. Focus Strategies (Type 4 and 5)


These target niche markets:
• Type 4 – Low Cost Focus: Offers lowest prices to a narrow segment (e.g., Dollar General).
• Type 5 – Best Value Focus: Offers customized high-value products to a niche market (e.g.,
luxury travel agencies).

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