8.2a Porter's Generic Strategies

Question 1

Competitive advantage definition

Answer 1

Something that prevents other businesses taking away its sales and profit

Question 2

Three genetic strategies that Porter suggested is used to create a competitive advantage:

Answer 2

• Cost leadership
• Differentiation
• Focus

Question 3

Four areas in generic strategy diagram:

Answer 3

• Cost leadership
• Differentiation
• Cost focus
• Differentiation focus

Question 4

The generic strategy model has the view that in order to find the most suitable strategy the business needs to identify:

Answer 4

• The source of its competitive advantage
• The scope of the market it sells to
  (These are the two axis on the diagram)

Question 5

What strategy will a mainstream business with a large target market pursue?

Answer 5

Cost leadership or differentiation

Question 6

What strategy will a business in a niche market follow?

Answer 6

A focus strategy

Question 7

What sort of business is cost leadership used by?

Answer 7

One in a mainstream market, that wishes to produce at the lowest cost possible

Question 8

How is cost leadership strategy carried out?

Answer 8

Through the use of economies of scale and selling mass produced product

Question 9

Example of a type of business that uses cost leadership strategy

Answer 9

Supermarket

Question 10

In what situation would a business use cost leadership strategy?

Answer 10

If it believed it could reduce costs by:

• New production methods
• Cheaper raw materials
• Increased productivity

Question 11

Advantages of cost leadership strategy:

Answer 11

• Producing at low cost
• Allows business to make more profit than rivals by having largest margin
• Gain advantage by selling at low price

Question 12

How can a business protect itself against other businesses also reducing their costs in a cost leadership strategy?

Answer 12

• Protect ideas with patent
• Economies of scale
• High barriers to entry

Question 13

In what situation would a business choose to use differentiation strategy?

Answer 13

If it believed it could emphasise key aspects of the product to make it stand out such as:

• Performance
• Durability
• After-sales service

Question 14

Differentiation can be done through:

Answer 14

• Packaging
• Branding
• Product design

Question 15

Advantages of diversification strategy:

Answer 15

• Create a USP

- Charge higher price

Question 16

What sort of business will use a focus strategy?

Answer 16

One that operates in a niche market segment

Question 17

What does Porter’s generic strategies suggest that a niche market business has to do?

Answer 17

Choose either a cost leadership or differentiation focus strategy as a mix of both will lead to them being ‘stuck in the middle’

Question 18

A cost focus strategy provides what?

Answer 18

Cheaper but similar alternatives to the higher-priced market leader

Question 19

Example of a business that uses a cost focus strategy:

Answer 19

Aldi

Question 20

What are Porter’s generic strategies used for?

Answer 20

To see if a business should consider lowering costs, differentiating from competitors, or focusing on markets ignored by others