1.7 Porter's Strategy

Question 1

Porter’s lower cost strategy

Answer 1

involves a business offering customers similar or lower-priced products compared to the industry average, while remaining profitable by achieving the lowest cost of operations among competitors

Question 2

Lower cost strategy +

Answer 2

+ Attractive cost-conscious customers
+ Reduces the expense of operations

Question 3

Lower cost strategy -

Answer 3

• Standardised or basic products may not meet the needs of customers who have specific needs
• Customers are not loyal to particular brands, if another business were to offer a cheaper alternative, these customers would likely switch to the new business immediately

Question 4

Porter’s differentiation strategy

Answer 4

involves offering customers unique services or product features that are of perceived value to customers, which can then be sold at a higher price than competitors

Question 5

A business can create a point of differentiation for its product by;

Answer 5

• Introducing new technology, such as electrical cars or wireless charging for smartphones
• Innovating its original good or services, such as adding new flavours
• Improving durability, meaning the product lasts longer because of higher quality materials or design
• Advertising a brand image that portrays a status or image aligned with the customers’ personal values
• Niche marketing by meeting the customer needs of a specific segment, such as fashion for plus-size men

Question 6

Differentiation +

Answer 6

+ Quicker sales from loyal customers when new products or services from the business are introduced
+ Can charge premium prices for products as customers cannot purchase the product elsewhere

Question 7

Differentiation -

Answer 7

• Can be difficult to prevent competitors from replicating points of differentiation
• Higher-selling prices can deter cost-conscious consumers

Question 8

Similarities

Answer 8

• Increase a business’s profitability by providing a competitive advantage

Question 9

Differences

Answer 9

• LC sells at similar or lower prices than competitors whereas D sells at premium prices
• LC targets cost-conscious consumers whereas D targets consumers that are not price-sensitive
• LC internal focus on operating processes whereas D external focus on meeting customer needs