Choosing How To Compete 3.8.2 Flashcards
what are porters two ways to compete
low cost or differentiation
What benefits does porter state come with having the lowest costs
Having the lowest costs provides long term stability as it cannot be easily copied and provides multiple benefits like being able to provide the lowest costs or enjoy large profit margins.
What benefits does porter state come with being differentiated
Differentiation works when it adds greater value than the cost embedded in the differentiation. Consumers will be willing to pay a premium price for a differentiated product as long as the difference is something they value, if they are willing to pay the extra price it also builds a customer loyalty as you satisfy there needs better than your competitors (buying the brand not the product) and allow you to steal competitors sales
what is porters focus strategy
Differentiation Focus
In the differentiation focus strategy, a business aims 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.
Cost Focus
Here a business seeks a lower-cost advantage in just one or a small number of market segments.
The product will be basic - perhaps a similar product to the higher-priced and featured market leader, but acceptable to sufficient consumers.
what is Bowman’s strategic clock
It is a further advancement of porter but talks about pricing instead of costs
It compares differentiation and low cost as strategic options (shows the different differentiation and price strategies)
It has value perceived by consumer on the y axis and price on the x axis, showing a strategies price and the value perceived by the consumer (focused differentiation, monopoly pricing)
strong strategies on the clock is where ‘value’ is greater than costs
https://www.tutor2u.net/business/reference/strategic-positioning-bowmans-strategy-clock
what are the influences on the choice for positioning strategies
The position of others in the market-
if others have an already secured a low cost position in the market it wouldn’t be a good I idea to compete with there cost position, so focused differentiation would be more effective
the operational skills within your business-
if you have skills in automation, low cost would have a viable future. If skills lie in R&D maybe differentiation is best
company objectives- what they want to achieve in a market, high market share, high profit margins, stability.
what are the benefits of having a competitive a advantage
Higher profits- Increase dividends (upping share price and therefore increasing market capitalisation), or reinvest into the business
faster sales growth
high capacity utilisation- firms that are offering high value for money are more likely to have high capacity utilisation due to increased sales, this means fixed cost will be spread over more units, lowering average costs
surviving recession- ability to provide lower prices due to low costs will be useful when consumer spending is low
economies of scale- by having a competitive advantage you can create a long lasting increase in sales, which will help lower unit costs (bulk buying)
what are the difficulties of maintaining a competitive advantage
Product differentiation can be lost (copied by other businesses)
If you differentiate due to finding a gap in the market and that market then grows, you will be threatened by new entrants.
low productivity growth, if wages grow faster than productivity you will start to lose your cost advantage
changes in consumer tastes (trends)
New laws and taxes
how can a business maintain a competitive advantage
updated and constant R&D
product development (when a cash cow becomes a dog you can have a new product to take its place)
strategic planning (keeping a eye on trends and competitors)
why is market positioning important
if you are positioned badly it can make it difficult to survive
can also influence market decisions
why might a business choose to be central positioning
medium cost medium differentiation
It is where the mass market is
