Porter's Generic Strategies

• Which two business strategies did Porter suggest to gain a competitive advantage?

  • Differentiation
  • Low cost
• Porter argued that differentiation and low cost are effective strategies for firms to gain what?

  Competitive advantage
• What is a competitive advantage?

  An advantage over competitors gained by offering consumers greater value, either by means of lowering prices or by providing greater benefits and service that justifies higher prices
• What is it called when a business has a low cost competitive advantage and targets a narrow/niche market?

  Cost focus strategy
• What is it called when a business has a low cost competitive advantage and targets a broad market?

  Cost leadership strategy
• What is it called when a business has a differentiation competitive advantage and targets a narrow/niche market?

  Differentiation focus strategy
• What is it called when a business has a differentiation competitive advantage and targets a broad market?

  Differentiation leadership strategy
• What does it mean if a business has a differentiation focus strategy?

  Has a differentiation competitive advantage in a niche market
• What does it mean if a business has a differentiation leadership strategy?

  Has a differentiation competitive advantage in a broad market
• What does it mean if a business has a cost leadership strategy?

  Has a low cost competitive advantage in a broad market
• What does it mean if a business has a cost focus strategy?

  Has a low cost competitive advantage in a niche market
• What does it mean by a low cost strategy?

  The objective is to become the lowest cost operator. This typcially involves production on a large scale which enables the business to exploit economies of scale.
• If a business wants to achieve a low cost competitive advantage whatd does the business want to exploit?

  Economies of scale
• Why is a low cost strategy important for a business

  • If selling prices are broadly similar, the lowest cost operator will enjoy the highest profits
  • Lowest cost operator can also offer the lowest prices (gain market share)
• What is an example of a business with a cost leadership strategy?

  Amazon
• What markets suit a low cost strategy?

  • Standard product
  • Little product differentiation
  • Branding relatively unimportant
• What are likely features of low cost operators?

  • High levels of productivity and efficiency
  • High capacity utilisation
  • Large scale = economies of scale
  • Use bargaining power to negotiate lowest prices from suppliers
  • Lean production methods
• What are two examples of real life businesses that use a low cost strategy?

  • Ryanair
  • Aldi
• What is a differentiation strategy?

  Aims to offer a product that is distinctively different from the competition, with the customer valuing that differentiation
• What are different ways of achieving differentiation?

  • Superior product quality
  • Branding
  • Wide distribution
  • Sustained promotion
• How can a superior product quality achieve differentiation?

  • Unique features
  • Benefits
  • Durability
  • Reliability
• How can branding achieve differentiation?

  • Strong customer recognition and desire
  • Brand loyalty
• How can a wide distribution achieve differentiation?

  Across all major channels (e.g. the product or brand is an essential item to be stocked by retailers)
• How can sustained promotion achieve differentiation?

  Often dominated by advertising, sponsorship, etc.
• What is an example of a business that uses a differentiation strategy?

  Apple
• What is a hybrid strategy?

  Uses a low cost and differentiation strategy
• What is an example of a business that uses a hybrid strategy?

  IKEA
• A business that is not a cost leader or is not differentiated is likely to be ‘caught in the middle’ and not be profitable.
• What are the influences on the choice of strategic positioning?

  • Competitors
  • Core competencies
  • External environment
• How do competitors influence the choice of strategic positoning?

  • Market share
  • Resources available
  • Overall strategy of the business
  • Already gained competitive advantages / competitors competitive advantages
• How do the core competencies influence the choice of strategic positioning?

  • Unique selling points
  • Scope to be able to differentiate
  • Scale and efficiency to be able to compete at a low cost
• How does the external environment influence the choice of strategic positioning?

  • Changes all businesses in the market need to respond to
  • Opportunities and threats