Michael E. Porter has talked about three basic strategies, which are
1. Cost relationship (low cost) strategy,2. Strategy, based on distinction and 3. Controlled strategy.
1. The cost relationship (low cost) strategy
This strategy is based upon the earlier mentioned experience effect. The experience accumulated by acquiring a larger market share and efforts are made to grab the cost leadership. Considering the economy scale also, the cost pre-dominance of leader enterprise becomes very important. However, cost pre-dominance does not depend on market share and scale alone. It is also important that the product should be so designed that the product becomes simpler, the cost may be distributed by perfecting the lines for the other related products and efforts must be made to develop alternate products which involve now raw-material cost.
In this strategy, it is demanded that the managers would implement strictly the cost control including the direct cost, however, there are some exception related to important fields like research and development, advertisement and P.R. and other such market as well as service related activities.
2.Strategy of distinction:
Creation of distinction means an opportunity to appeal something special and different in the service or the product which is to be supplied to the customer. There are various methods which can be considered for the creation of distinction on these include the creation of distinction on the basis of product style or brand image, distinction on the basis of technology, distinction on the basis of customer service and the distinction on the basis of dealer network etc. (here, the creation of distinction does not include those aspects which are based upon low cost).
All these methods are not the alternative methods to each other. It is desirable to implement the creation of distinction on more number of points. Further, in the strategy of distinction, it means that creation of distinction on more number of points. Further, in the strategy of distinction, it means that though the cost is not the prime target of the strategy, it does not mean that the cost can be ignored completely.
The margin can be set at higher level depending upon the brand loyalty of the customer, therefore, it is possible for the manufacturer to survive in the industry even when it is little disadvantageous from the cost point of view. The higher margin percentage and better customer loyalty play an advantageous role even while tacking the threat from alternate product or during negotiations with the supplier. However, it may be noted that the strategy based on creation of distinction has its limitations with regard to the share expansion.
Creations of distinction itself requires some cost and it does not go well with the establishing, which is cost sensitive, on this account. Further depending upon the point on which the creation of distinction is based, it may involve large amount of expanses for maintaining the marketing, research and development, customer services and dealer networking etc.
The customers who pay large amount of money for excellent services, high quality and brand image may not necessarily form the large part of the overall clientele.
3.Concentrated strategy:
Concentrated strategy stands for a strategy in which focus is laid on a specific part or specific customer segment or the original market and not the full line of product field in the industry.
The low cost strategy and the strategy based on creating distinction are meant for the overall products and the markets of the industry, whereas, the concentrated strategy pursues the low cost or the creation of distinction for specific market segment. Both can be achieved in the limited narrow scope.
This was a brief explanation about the three basic strategies. However, in actual practice, the organization, the resources and the business system which are involved in coordination of the strategy also have their respective diversified content.