In the event of a price war, the firm can maintain some profitability while the competition suffers losses. The firm sells its products either at average industry prices to earn a profit higher than that of rivals, or below the average industry prices to gain market share. This generic strategy calls for being the low cost producer in an industry for a given level of quality. The following table illustrates Porter's generic strategies: They are called generic strategies because they are not firm or industry dependent. These strategies are applied at the business unit level. By applying these strengths in either a broad or narrow scope, three generic strategies result: cost leadership, differentiation, and focus. Michael Porter has argued that a firm's strengths ultimately fall into one of two headings: cost advantage and differentiation. Even though an industry may have below-average profitability, a firm that is optimally positioned can generate superior returns.Ī firm positions itself by leveraging its strengths. If the primary determinant of a firm's profitability is the attractiveness of the industry in which it operates, an important secondary determinant is its position within that industry.
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