This document summarizes Porter's generic strategies of cost leadership, differentiation, and focus as applied to various companies. It discusses Southwest Airlines' strategy of cost leadership in the airline industry by being more efficient and passing on savings to customers. It also discusses Starbucks' differentiation strategy of offering customized coffee drinks and investing in employee benefits and culture. Finally, it briefly discusses Zendesk's focused differentiation strategy of providing a cloud-based customer service platform and positioning itself as a thought leader in the industry.

1. Assignment on
Porter’s Generic
Forces
By- Sankalp Katiyar Submitted to- Dr .V N. Bajpai
Section- B
PGDM- 2014-16

2. Cost Leadership strategy-
Cost leadership is a concept developed by Michael Porter,used in business strategy. It describes a way
to establish the competitive advantage. Cost leadership, in basic words, means the lowest cost of
operation in the industry. The cost leadership is often driven by company efficiency, size, scale, scope and
cumulative experience (learning curve). A cost leadership strategy aims to exploit scale of production,
well defined scope and other economies (e.g a good purchasing approach), producing highly standardized
products, using high technology. In the last years more and more companies choose a strategic mix to
achieve market leadership. This patterns consist in simultaneous cost leadership, superior customer
service and product leadership.
Cost leadership is different from price leadership. A company could be the lowest cost producer, yet not
offer the lowest-priced products or services. If so, that company would have a higher than
average profitability. However, cost leader companies do compete on price and are very effective at such
a form of competition, having a low cost structure and management
Airline company
Southwest Airlines Co. is a major U.S. airline and the world's largest low-cost carrier, headquartered in
Dallas, Texas. The airline was established in 1967 and adopted its current name in 1971. Wikipedia
Stock price: LUV (NYSE) US$ 38.00 -1.30 (-3.31%)
6 Oct, 4:01 PM GMT-4 - Disclaimer
CEO: Gary C. Kelly
Bag information: In economy, two bags free. More Southwest Airlines bag information
Founded: March 15, 1967, Dallas, Texas, United States
Fleet size: 686
Founders: Rollin King, Herb Kelleher
Southwest Airlines
The airline industry has typically been an industry where profits are hard to come by
without charging high ticket prices. Southwest Airlines challenged this concept by
marketing itself as a cost leader. Southwest attempts to offer the lowest prices possible
by being more efficient than traditional airlines. They minimize the time that their planes
spend on the tarmac in order to keep them flying and to keep profits up. They also offer
little in the way of additional thrills to customers, but pass the cost savings on to them.

3. Differentiation strategy-
Approach under which a firm aims to develop and market unique products for
different customer segments. Usually employed where a firm has clear competitive advantages,
and can sustain an expensive advertising campaign. It is one of three generic marketing
strategies (see focus strategy and low cost strategy for the other two) that can be adopted by any
firm
A differentiation strategy calls for the development of a product or service that offers
unique attributes that are valued by customers and that customers perceive to be better
than or different from the products of the competition.
Starbucks employs a broad differentiation strategy. This strategy is
concentrated on a broader segment of the total market. Starbucks serves a market that is defined
by coffee drinkers. Starbucks has made the organization well-known for tailoring to broad
customers’ needs by preparing orders to meet customers’ wishes, no matter how detailed they
are. Starbucks is also well known for quality products, with stringent guidelines outlining how
their coffees are to be prepared, as detailed as espresso must be served within twenty-three
seconds of brewing. Starbucks has secured a competitive advantage with its unique, yet
diversifying product offerings. They accommodate what their buyers view as valuable and are
able to create demand at a profitable price. To successfully employ this strategy, Starbucks
provides differentiated quality and service in the coffee sales and shop industry while
diversifying their offerings to include: a variety of coffee product sales outside their stores
through partnership with PepsiCo, Starbucks brand liqueur through partnership with Jim Beam,
food and merchandise sales, and other acquisitions such as Tazo tea. They are able to hook
customers with the quality and service provided in their coffee shops which leads to customers’
purchases of other Starbucks labeled items such as bottled coffees in grocery stores or Starbucks
brand liqueur at the liquor store.Starbucks target market is large enough to offer continued
growth potential and attractive profits. They are well-positioned in the market with a plentiful
amount of easy to access stores. Perhaps Starbucks most impactful strategy is the time, effort,
and financial resources that are invested into its employees – or partners as Starbucks has

4. eliminated the word employees from its vocabulary. Starbucks offers their partners the
opportunity to purchase company stock through payroll deductions. Most famously, Starbucks
offers all part-time employees that work at least twenty hours health insurance benefits, a benefit
implemented by CEO Howard Schultz who watched his father struggle as an employee of
companies that did not offer such benefits. Schultz’s strategy is to keep Starbucks’ partners
happy and passionate about their work through compensation, benefits, and company culture.
His expectations in return are to retain employees (reducing training and turnover expenses) and
generate revenue (through customer satisfaction).

5. Cost focus strategy-
Cost Focus means emphasizing cost-minimization within a focused market, and Differentiation
Focus means pursuing strategic differentiation within a focused market.
Mercedes Benz is described in Appendix Y. It reveals that barriers to entry into luxury car
market are high, substitute industries are few, and buyer and supplier powers are weak. The
biggest threat to profit making comes from rivalry within the industry itself. Mercedes may be
obliged to drive down costs or prices in order to gain a competitive edge over rivals, or raise
research costs in pursuit of product differentiation and advertising. This explains why BMW
outsells Mercedes as they offer lower prices, while having more powerful engine leading to
better performance and efficiency than Mercedes in all segments.Furthermore, government
regulation may well play an increasing role as environmental regulation requires firms to explore
more efficient and alternative means of powering their vehicles. This has a mixed effect: higher
research and development costs may reduce profit levels but, in the long run, firms meet
consumer preferences for "greener" vehicles and so may see a rise in sales and
profitability.Mercedes-Benz practises an internal culture of continuous improvement that ensures
that employees across all production plants continually strive to improve output to meet
Mercedes-Benz's quality benchmarks (Kuhn 2000).Hessenberger et al. (1997) explain that
continues improvement culture is an essential feature of a company's sustainable competitive
advantage over rivals.Mercedes-Benz also has a reputation as a world leader in safety and is
renowned for its huge expenditure in Research and development (R&D). In 2006, it spent $3
billion in R&D at the expense of profitability and competitive advantage. The various versions of
its flagship executive saloon S-Class model was the first ever road cars to feature seatbelt pre-
tensioners, airbags, traction control and electronic stability programs (ESP).

6. Differentiation Focus strategy
A focused differentiation strategy means targeting a small group of customers
with differentiated products.
Zendesk, Inc. is a software development company based in San Francisco, California. The
company provides a cloud-based customer service platform, also called Zendesk, that includes
ticketing, self-service options, and customer support features.
CEO: Mikkel Svane
Founded: 2007, Copenhagen, Denmark
Founders: Alexander Aghassipour, Morten Primdahl, Mikkel Svane
ZENDESK
Why they’re brilliant:
 No longer is customer service some person in the back of the building like Kelly from
“The Office”, it’s immediate, digital, and genuine
 One-stop shop customer service that empowers the whole organization
 Create priority for customer service agents, no longer is it just “take a ticket”
 Destroying the stereotype that customer service is something that’ll take forever
How they’re doing it:
 Customer service made beautifully simple
 Software brings all customer feedback into one place
 Integrates service with technology - see their questions and gain access to the tools to
answer it properly
 Partnership with Zopium, a live chat service
 A clean and intuitive site design that makes it easy to learn - form and content are aligned
 Offers best practices to their customers, positioning Zendesk as a industry thought leader

7. Low Cost Strategy
Toyota isthe lowcost leaderintheirindustry.Recenteventshave suggestedthatToyotahas focused
too muchon lowcost, losingmarketshare andtheirmarketpositioningof superiordesignandquality,
whichhistoricallytheyhave usedadifferentiationstrategy.ForToyota,the biggestthingtheyneedto
do ismake sure that theirlowcost strategydoesnotcompromise theirsuperiordesignandquality.
WhenlookingatToyota’sgrand strategy,theyhave beensuccessful atproductdevelopment.By2012
Toyota isplanningtohave more then20 modelsthatuse batteriestoextendfueleconomyjustlike their
Prius(Krolicki).Althoughtheyhave notbeenasaggressiveinthe electriccarmarketrecently,liketheir
competitors,theyare planningtoreleasearechargeable versionof theirPriusbyJune 2012 (Krolicki).
Thisre-chargeable versionwill positionToyotatoattempttotake overas a low costleaderof hybrid
technologieswithinthe market,whichsupportsToyota’soverallstrategyof low cost(Krolicki).
Due to changesin governmentpoliciesandthe competivenessof the industry,Toyotawasforcedto
take an offensivestrategy.Withaseriesof damagingsafetyrecalls,Toyotahashadto evaluate their
currenttrack of superiordesignwhichcausedthemtotemporarilyloose trackof theirformeroffensive
strategyof quality(Krolicki).Recently,theyhave beenhadtowork extrahardto get back to their
offensive strategyandbackto beingthe industryleader(Krolicki).
Due to the recentsafetyrecallsToyotahasbeentemporarilyde-railedfromtheirstrategy.Theyneedto
getback on track and re-focusedandmake sure thattheyconcentrate onwhat made themunique.In
orderto make thishappen,managersof Toyotaare goingto have to focuson companycommunication
and bringingbackitsformerfoundationof makingqualitycarsthatare dependable andreliable in
additiontomodern.The companyfounditsweakspotwhenitcame to the waythe companyresponded
to the recalls.Inthe beginningof the recall era,Toyotawasveryslow inits response.Finally,Toyota
executivesmade the call torecall more thanfive millionof itsownvehiclesdue tonumerousdifferent
issues.Atthe same time,itwasdecidedtohaltall salesof Toyota vehiclesaswell until the problem
couldbe addressed.Fora car company,thisisa huge deal and one that will affectthe balance sheetsfor
yearsto come.However,Toyotaseemedslowinfindingasolutiontoitslargestproblemincompany
history(andinthe industry’shistory).Withahuge recall andhaltin sales,one wouldassume that
managementwouldbe pushingfordayand nightresearch,productdevelopment,andproblemsolving
inorder to gettheirproductback on the market.Instead,ittookToyota a little overaweek(kbb.com/
“Toyota Recall andSalesFreeze”) tofindafix andevenlongertogetit out to dealersand Toyota
mechanics.The terrible communicationwithinthe companywasshownwhendealershadnoideaor
wordfrom the companyas to what the game planswere andwhenthe UnitedStatescalledinseveral
Toyota executivestocongressional hearingswhere finger pointingbegan.
The Toyota product development system is known as Lean Manufacturing. Its objective is to integrate
people,process,andtechnology.Toytoa’sproductdevelopmentprocedure isessentially different from
a manufacturing process. Its backbone is not visible, but knowledge and information which are
untouchable.The productdevelopment’scycle time ismuchlongerthanhours.Itusuallytakesweeksor

8. even months. The production chains are non-linear and multi-directional. Workers are no longer
manufacturingworkersbutspecialistswithhighdiversetechnology.Thisproductdevelopment strategy
is viable for Toyota. This is because this strategy does help Toyota to prolong the life cycle of current
product. For instance, Toyota Camry is a very successful current product which is prolonged its life.
Camry hasbeenmade since 1980s. Camry issetat an middle-highlevel of family veichle. After 30 years
development, Camry is still very famous all over the world. This cannot be separeted by Toyota’s
successful productdevelopmentstrategy. One of the key features of the Toyota product development
systemisfunctional engineering managers. They are primarily teachers in the Toyota system, who are
the most technicallycompetentengineers,withthe highest levelsof experience. Toyota’s management
groupis consistof higheducatedexperts.Theywereall engineersandtheir technical excellence is very
famous.But recently, Toyota’s product development system does not work very well. In recent years,
more and more recall issues happened and that hurt Toyota’s reputation very much. Most of these
recallsare relatedtoToyota’stechnical problem.Gaspadel isone of the major aspects which leaded to
manyseriouscar accidents.Thishurts Toyota’s reputation and brand name very much. However, news
fromCNN still saysthat Toyotaannouncedthat they have no responsibility for gas padel problems and
those car accidents. This is really bad for Toyota. Under product development strategy, what Toyota is
supposedtodo is to improve its product quality and technology. Besides, they also need to make sure
their products are safety.
Breakingoutof the box seemslike aviable wayforToyotanowadays.Since 2003, Toyota Secondary-
generationPriusofficiallyunveiledtothe pressforthe firsttime.ToyotaPriushave beenone of the best
sale cars for more than 7 years.Evenwas the numberone sellingHybridinAmericawitharound
140,000 soldjustin2009 whenthe auto marketwithdepression.Although,the performanceof Toyota
Priuswasexcellentinthe past.Toyotastill needstostrongeritsadvantage bya innovationtoreceive a
renaissance fromall the recall issues.Forthe 2010 Priushybridautomobile,the companyredesigned
manyaspectsof the car to stand-outfromthe fuel economy.Forachievingthe bestpossible fuel
economy,the 2010 Priushas extensive aerodynamicfeatureswhichincludesmostpartsof the car. They
are all designedtominimize drag-inducingairturbulence.Toreduce fuel-guzzlingweight,Toyotamade
the batteryan integral structural partof the car ratherthan a bolt-onbox.Specifically,there are even
three performance modesforthe new2010 Prius,whichare EV-Mode,PowerMode andEco Mode. By
all the changes,Toyotais on hiswayto receive revivebythe innovation strategy.