3.8.2

Question 1

What does strategic positioning involve?

Answer 1

Strategic positioning will involve a business choosing how it intends to compete within a market. Strategic positioning involves deciding on the right mix of product features/benefits and matching this against price.

Question 2

What will the aim of a business be for strategic positioning?

Answer 2

The aim of a business will be to strategically position itself differently from its competition.

Question 3

Michael Porter suggested that a business should follow one of three positioning strategies in order to compete within its
market. Essentially, Porter maintained that companies compete either on:

Answer 3

• price (cost leadership)
• perceived value (differentiation)
• by focusing on a very specific customer (market segmentation)

Question 4

Porter believed that a business must have a distinguishable

Answer 4

focus in order to compete with rivals. The strategies are based around the source of the competitive advantage and the scope within the market

Question 5

What is the cost leadership strategy?

Answer 5

Achieve an advantage by being the lowest cost operator in the market.

Question 6

Ways to achieve a cost leadership strategy

Answer 6

• operate at a scale that keeps average costs low
• achieve economies of scale through growth
• have unique access to technology
• have unique access to skills or raw materials
• control the supply of a product

Question 7

Benefits of cost leadership strategy

Answer 7

• can help to achieve high profit margins as cost per unit is kept low.
• It can maintain market price and gain higher profit margins
• It can lower price and acquire market share

Question 8

Limitations of cost leadership strategy

Answer 8

Few businesses can operate as the cost-leader within a market as multiple businesses cannot directly compete on cost.

Question 9

Cost leadership (proximity)

Answer 9

Similar to cost leadership (parity) in that lower costs are achieved.
However, higher value is achieved.

Question 10

Cost leadership (parity)

Answer 10

Perceived value may be
the same as the average competitor, but by being able to achieve lower costs the business achieves higher profit margins.

Question 11

What is the differentiation strategy?

Answer 11

Compete by offering a unique product or service to the market or a niche.

Question 12

With the differentiation strategy costs may be

Answer 12

higher than the average competitor but the perceived value and unique features add considerable value to achieve a desirable profit margin. This can be achieved in a mass market or niche market.

Question 13

Basis for differentiation might include:

Answer 13

• quality
• customer service
• brand personality
• customer experience
• after sales service
• speed and efficiency
• meeting the unique needs of a specific market niche.

Question 14

Benefits of the differentiation strategy:

Answer 14

• It can make the business stand out.
• helps develop a unique brand image.
• adds value and therefore higher prices can be charged.

Question 15

Limitations of differentiation strategy

Answer 15

Other businesses may be able to copy the strategy if it is not sustainable or defensible, e.g. a product is defensible if it is under copyright.

Question 16

What is the segmentation strategy?

Answer 16

Segmentation can be achieved through either cost leadership or differentiation. It involves targeting a specific group of customers (niche) and not the whole market.

Question 17

Both cost leadership and differentiation can be achieved through targeting the

Answer 17

whole market or a specific segment or niche. The basis of the segment could be its unique needs, geographic or demographic characteristics or a specialist product or service.

Question 18

Benefits of segmentation strategy

Answer 18

• It is easier to target a narrow segment of the market as communications and marketing can be focused.
• It is possible to develop a better understanding of
  customer needs as the segment has narrower interests, needs and characteristics.

Question 19

Limitations of segmentation strategy

Answer 19

• Customer loyalty is vital if sales are to be maintained - every customer counts.
• The market may disappear (or no longer be a viable option) if it shrinks in size.

Question 20

Influences on strategic position

Answer 20

1. External environment - for example, commodity prices (an increase in price may limit a business’s ability to be cost-leader) and social trends (if a clothing company focuses on a certain fashion style, this can quickly lose popularity) may determine whether certain positions are attractive or feasible.
2. Core competencies - a business will base its position on its relative strengths, for example, a business that has developed a strong brand image for high quality.
3. The position of competitors - the principle of positioning is that businesses should aim for a unique position so that they are not competing ‘head on’ with a rival, for example Next Home will avoid direct competition with Ikea.

Question 21

The value of strategic positioning:

Answer 21

Strategic positioning helps businesses develop a USP and basis for differentiation. Without strategic positioning
the only way that a business can compete is on a price basis - see in generic markets where there is no difference between products

Question 22

Strategic positioning also helps businesses to

Answer 22

maximise profitability and avoid direct competition

Question 23

The business environment is constantly changing. Customers and economic conditions need change along with the

Answer 23

competitive environment. along with the competitive environment. Over the past few years the growth of budget supermarkets such as Lidl and Aldi have made market leaders like Tesco reconsider their strategy of cost leader by being able to offer fewer but cheaper prices along with customers’ desire for value for money. Sometimes a business will have to change its strategic position, (for example from cost leadership to differentiation) but this is not easy as businesses build a reputation and brand for offering a certain type of product at a certain price.

Question 24

When does a competitive advantage exist?

Answer 24

where a business creates value for its customers that is greater than the costs of supplying those benefits and that is greater than that offered by competitors.

Question 25

A sustainable competitive advantage can only be achieved through three areas of practice:

Answer 25

1. Innovation - the ability of a business to create new and unique processes and products. These can sometimes be legally protected through a patent.
2. Architecture - this refers to the relationships within a business that create synergy and understanding between suppliers, customers and the employees of a business.
3. Reputation - brand values are hard to replicate and may take years to develop.

Question 26

Each factor can lead to a sustainable competitive advantage because they are all

Answer 26

unique, not easily copied and may take a long time to achieve.

Question 27

Competitive advantage gives a business a basis for

Answer 27

competition and a way of adding value that other businesses cannot imitate - a reason for customers to choose the business over its rivals.

Question 28

However, over time each of the factors above can gradually erode, such as

Answer 28

relationships in a business as the workforce changes over time or as a valuable patent expires.