business strategy Flashcards
what are generic competitive strategies?
‘generic strategy’ = basic types of competitive strategy that hold across many kind of business situations
what is competitive strategy?
concerned with how a company, business unit or organisation achieves competitive advantage in its domain of activity
what is competitive advantage?
how a company, business unit or organisation creates value for its users, both greater than the costs of supplying them and superior to that of rivals
what elements are included in michael porter’s generic strategies?
competitive advantage:
- lower cost
- differentiation
competitive scope:
- broad target
- narrow target
what is cost leadership on MP’s generic strategies?
- lower cost
- broad target
what is differentiation on MP’s generic strategies?
- differentiation
- broad target
what is cost focus on MP’s generic strategies?
- lower cost
- narrow target
what is differentiation focus on MP’s generic strategies?
- differentiation
- narrow target
explain a cost leadership strategy
involves becoming the lowest-cost organisation in a domain of activity
what are 4 key cost drivers that can help deliver cost leadership?
- lower input costs
- economies of scale
- experience
- product/process design
explain the differentiation strategy
involves uniqueness along some dimension that is sufficiently valued by customers to allow a price premium
what are 2 key issues of the differentiation strategy?
- the strategic customer on whose needs the differentiation is based
- key competitors: who are the rivals and who may become a rival
what are the key drivers of differentiation?
- product and service attributes: providing better or unique features (e.g. Apple iphone)
- complements: building on linkages with other products/services (e.g. Apple and App store)
- customer relationships: customer services, customisation or marketing and reputation
what 4 strategies are included in Porter’s generic strategies?
- cost leadership
- differentiation
- cost focus
- differentiation focus
explain the focus strategy
targets a narrow segment of domain of an activity and tailors its products/services to the needs of that specific segment to the exclusion of others
what are the two types of focus strategy?
- cost-focus strategy
- differentiation focus strategy
stuck in the middle?
Michael Porter argues:
there is a fundamental trade-off between a cost-leadership strategy and a differentiation strategy. thus, firms need to adopt and stick to one single generic strategy
- failure to do this leads to a danger of being ‘stuck in the middle’ - doing no strategy well
what is the strategy clock?
allows for a dynamic approach for examining alternative generic strategies and gives more scope for hybrid strategies
- has 2 distinct features
what are the 2 distinct features of the strategy clock?
- it is focused on the prices to customers rather than the costs to organisations
- the circular design allows for incremental adjustments in strategy rather than stark choices
what strategies are included in the strategy clock?
- differentiation strategies
- low price strategies
- hybrid strategies
- non-competitive strategies
what are differentiation strategies (strategy clock)?
strategies in this zone seeks to provide products that offer benefits that differ from those offered by competitors
there are a range of alternative strategies from:
- differentiation without price premium (12 o clock) = used to increase market share
- differentiation with price premium (1 o clock) = used to increase profit margins
- focused differentiation (2 o clock) = used for customers that demand top quality and will pay a big premium
what are low-price strategies (strategy clock)?
low price combined with low perceived value
- a standard low-price strategy (9 o clock): low prices combined with similar quality to competitors aimed at increasing market share; needs a cost advantage (such as economies of scale) to be sustainable -> e.g. Aldi and Lidl in grocery retailing
- a ‘no-frills’ strategy (7 o clock): focusing on price sensitive market segments ; typified by low-cost airlines like Ryanair and easyJet
explain hybrid strategies
seeks to achieve low prices and higher benefits simultaneously
- to enter markets and build position quickly
- as an aggressive attempt to win market share
- to build volume sales and gain from mass production
explain non-competitive strategies
- increased prices with low perceived product or service benefits
- in competitive markets, such strategies will be doomed to failure
- only feasible where there is a near monopoly position
