3.8.2 Strategic positioning: choosing how to compete Flashcards
Define Porter’s Generic Strategies
- this includes strategies that could be adopted in order to gain competitive advantage. The strategies relate to the extent to which the scope of a business’ activities are narrow versus broad and the extent to which a business seeks to differentiate its products
What does Porter’s generic strategies look like?
Explain what a cost advantage is.
- The objective is to become the lowest-cost producer in the industry
- Produce on a large scales as this enables businesses to exploit economies of scale
- Associated with large scale firms offering standard products with relatively little differentiation that are readily acceptable to the customers
- Occasionally, a low-cost leader will also discount its product to maximise sales, particularly if it has a significant cost advantage over the competition and, in doing so, it can further increase its market share
State ways to achieve cost leadership.
- High levels of productivity
- High capacity utilisation
- Use of bargaining power to negotiate the lowest prices for production inputs
- Lean production methods (e.g. JIT)
- Effective use of technology in the production process
- Access to the most effective distribution channels
Explain cost focus
- Businesses seek a lower-cost advantage in just one or a small number of market segments.
- Products are basic and sometimes similar product to the higher-priced and featured market leader, but acceptable to sufficient consumers
- Such products are often called “me-too’s”
Explain differentiation focus
Businesses aim to differentiate within just one or a small number of target market segments.
The special customer needs of the segment mean that there are opportunities to provide products that are clearly different from competitors who may be targeting a broader group of customers
Firms have to ensure customers have different needs/wants (valid basis for differentiation)
Also have to make sure competitors aren’t meeting these needs too
Niche marketing strategy
Small firms establish themselves in a niche market segment using this strategy
They achieve higher prices than un-differentiated products through specialist expertise or other ways to add value for customers.
Explain differentiation leadership
- Businesses targets much larger markets and aims to achieve competitive advantage through differentiation across the whole of an industry
- Involves selecting one or more criteria used by buyers in a market, and then positioning the business uniquely to meet those criteria
- Associated with charging a premium price for the product
- Higher prices reflect the higher production costs and extra value-added features provided
- Give customers clear reasons to prefer these products over others
State methods of achieving differentiation leadership
- Superior product quality (features, benefits, durability, reliability)
- Branding (strong customer recognition & desire; brand loyalty)
- Industry-wide distribution across all major channels (i.e. the product or brand is an essential item to be stocked by retailers)
- Consistent promotional support – often dominated by advertising, sponsorship etc
What is Bowman’s Strategic Clock and what is its purpose?
A model that explores the options for strategic positioning (ie how a product should be positioned to give it the most competitive position in the market
The purpose of the clock is to illustrate that a business will have a variety of options of how to position a product based on two dimensions – price and perceived value
What does Bowman’s Strategic Clock look like?
Explain low price and low value added (position 1)
Not a very competitive position
The product is not differentiated (very standardised)
Customer perceives very little value, despite a low price. This is a bargain basement strategy
The only way to remain competitive is to be as ‘cheap as chips’ and hope that no one else is able to undercut you
Example = paperclips
Explain low price (Position 2)
- Low cost leaders in the market
- Cost minimisation is needed, often associated with economies of scale
- Profit margins are low but they produce a high volume of output which generates high overall profits
- Competition is usually intense – often involving price wars
- Example = pens such a disposable biros
Explain hybrid (position 3)
- Elements of low price and differentiation
- The aim is to persuade consumers that there is a good added value through the combination of a reasonable price and acceptable product differentiation
- This can be a very effective positioning strategy, particularly is the added value involved is offered consistently
- Example = Lidl or Aldi as they sell branded items but also their own branded products
Explain differentiation (position 4)
- The aim of a differentiation strategy is to offer customers the highest level of perceived added value
- Branding plays a key role in this strategy, as does the quality of the good
- Example = BMW and Audi for their family range cars such as 4x4s
Explain focused differentiation (position 5)
- Customers buy the product because of a high perceived value with a higher price
- Adopted by luxury brands, who aim to achieve premium prices by highly targeted segmentation, promotion, and distribution
- Done successfully, this strategy can lead to very high profit margins but usually short term
- Example = Rolex watches as they have maintained their high position in the watch and accessory industry with a high price
