3.8.2 Porters Strategies / Bowmans Strategic Clock / Comparing Strategic Positions / The Value Of Strategic Positioning Flashcards
What will strategic positioning involve
How a business intends to compete within a market. It involves deciding on the right mix of features/benefits and matching this against price.
What did porter say businesses need to compete on in order to stay competitive
Price cost (cost leadership or perceived value (differentiation) or by focusing on a very specific customer (market segmentation
How may a business be able to achieve cost leadership
Operate at scales that keeps average cost 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
Benefits and limitations of cost leadership strategy
Benefits:
- can help achieve high profit margins as cost per unit is kept low
- can maintain market price and gain higher profit margins (parity(equal))
- can lower price and acquire market share
Limitations
-few businesses can operate as cost leaders within a market as multiple businesses cannot directly compete on cost
What may basis for differentiation on products include?
- quality
- customer service
- brand personality
- customer experience
- after sales service
- speed and efficiency
- meeting the unique needs of a specific market niche
Benefits and limitations of differentiation strategy
Benefits:
- can make the business stand out
- helps develop a unique brand image
- differentiation adds value (special or unique) and therefore higher prices can be charged
Limitations:
-other businesses may be able to copy the strategy if it is not sustainable or defensible (a product is defensible if it is under copyright
How can segmentation be achieved
Can be achieved through either:
-cost leadership
or
-differentiation
Involves targeting specific groups of customers (niche)
Benefits of segmentation strategy and limitations
Benefits:
- 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
Limitations:
- customer loyalty is vital if sales are to be maintained - every customer counts
- the market may disappear (or no longer viable option) if it shrinks in size
What American company is a cost leader and how?
Walmart:
- target a broad market with everyday low prices
- sells brands targeted at mass markets where customers are price sensitive
Operates to economies of scale which few businesses can compete with
What are bowman’s eight strategic positions
1) Budget products - low value products at low price
2) Excellent value - Businesses compete through achieving economies of scale (Walmart operates on a large scale at a low cost through economies of scale
3)Hybrid - companies offer fair prices for reasonable products e.g Ford good quality
cars with a range of features, but priced for mass market
4) Differentiation - without a price premium. High perceived value possibly through effective branding e.g Holister target a teenage market with a desirable brand allowing it to charge higher prices
5) Focused differentiation - premium products where customer may expect to pay higher prices for status e.g LV may differentiate themselves on quality, but target top end of the market
6) High margins - short-term strategy to achieve high margins without justified value. Selling a product to an uninformed customer or a Bluetooth speaker without understanding the features associated with the audio
7) Monopoly pricing - a captive market where customer has no choice or alternative e.g motorway services
8) a non-competitive product - value/benefits do not justify. Products may still sell. If customers have no choice or are unable to experience/test products first
Why may some of bowmans strategies be identified as risky
They are products with low value being sold at a high price. Monopoly pricing or risky high margins do not offer customer value for money and can be seen as taking advantag of customers. Reputation and customer loyalty can be easily damaged if customers feel the are being treated unfairly
Identify two positions that may influence the strategic position a business takes
Position of competitors - the principle of positioning is that firms will position themselves so that they are not competing directly (head on) with a rival e.g next home wont position themselves so they are competing directly with ikea
External environment - for example commodity prices (an increase in price may limit business ability to become costs leaders) and social trends (if a clothing company focuses on a certain fashion style, they can lose popularity quickly) may determine where certain positions are attractive or feasible
Why might strategic position for a business change over time
Customer needs / competitive environment and economic environment are always changing. E.g Budget supermarkets (Lidl/Aldi) have made market leaders such as Tesco reconsider their strategy.
Where does competitive advantage exist
Exists where a business creates value for its customers that is greater than the cost of supplying those benefits and that is greater than offer by competitors.
What three areas of practice need to be implemented in order to achieve a sustainable competitive advantage
1) Innovation - ability for a business to create new and unique processes and products. Can be legally protected through a patent
2) Architecture - refers to the relationships within a business that create synergy and understanding between suppliers, customers and employees of a business
3) Reputation - brand values are hard to replicate and may take years to develop
