In general, there are two types of competitive advantage a firm can pursue: low cost or uniqueness. Using a low-cost strategy, a firm simply tries to have lower costs than the marginal producer in the industry. With the uniqueness strategy, a firm tries to persuade customers to pay more. A uniqueness strategy usually entails offering products of higher quality or with more features than other products in the marketplace.

Firms may choose to target a broader or narrower segment of the market. Broad-scope firms tend to deliver products and services that appeal to a wide number of these segments. They may do so by offering individual products and services with broad appeal or by offering a portfolio of products that cover the product space. These two dimensions, broad versus narrow and low cost versus unique, define four generic strategies: Broad-scope, low-cost players are referred to as COST LEADERS.

Walmart is a classic example of a company trying to appeal to a wide audience with the lowest-cost products. Cost leaders typically engage in aggressive cost-cutting, build market share to gain economies of scale, use low-cost inputs and labor, minimize overhead such as R&D, and invest in low-cost, state-of the- art operations and continuous improvement initiatives. Broad-scope, unique players are referred to as DIFFERENTIATED PLAYERS. The Target Corporation is illustrative of this strategy.

A mass-market retailer, it offers higher-quality products in a more refined setting (and at higher prices) than Walmart does. Differentiators often invest heavily in advertising to build brand awareness, develop innovative capabilities to stay on the cutting edge, and invest heavily in human resources and other ancillary activities. On the narrow side, we have both focused, LOW-COST PLAYERS and differentiated NICHE PLAYERS. Kia entered the U.S. market as a focused, low-cost auto manufacturer — offering a narrow line of low-cost cars to a limited market. On the flip side, Tesla was a new entry into the U.S. automobile
market with an electric-powered sports car — a higher-end vehicle costing over $100K and appealing to a narrow set of environmentalists and technophiles (not to mention celebrities).

Some firms pursue generic strategies that cross these boundaries. Toyota is a classic example of a company that has simultaneously attempted to be both low cost and high quality (i.e., unique). Some argue that firms do so at their own risk, however, Often, these firms get stuck in the middle — being neither the lowest-cost player or all that differentiated in the market.