Competitive positioning

Question 1

What is competitive positioning?

Answer 1

Porter suggests that sustainable competitive advantage arises from the selection of a generic strategy which best fits the organisation’s environment (Porter’s 5 Forces) and then organising value-adding activities (Value Chain Analysis) to support the chosen strategy.

Question 2

What are Porter’s Generic strategies?

Answer 2

 Cost leadership – seeking to be the lowest cost producer in the industry.
 Differentiation – creating tangible and intangible product features that the customer is willing to pay more for.
 Focus – utilising either of the above in a narrow profile of market segments (sometimes called niching).

Question 3

What are common methods for achieving cost leadership?

Answer 3

 Economies of scale – e.g. Primark’s large stores
 Seek cheaper sources of supply – e.g. budget supermarkets
 Reduced labour cost – e.g. manufacturers who outsource overseas
 Use value chain to identify and reduce non key activities – e.g. Ryan Air

Question 4

What are the possible benefits of a cost leadership?

Answer 4

 Business can earn higher profits by charging the same price as competitors.
 Firm remains profitable in a price war.
 Economies of scale create entry barriers.

Question 5

What are the risks of adopting a cost leadership strategy?

Answer 5

 Only room for one cost leader – no fallback position if the cost advantage is eroded.
 Cost advantage may be lost because of inflation, movements in exchange rates, competitors using more modern manufacturing technology or cheap overseas labour, etc.
 Customers may prefer to pay extra for a better product.

Question 6

How do you become a differentiator?

Answer 6

 Strong branding – e.g. designer clothing
 Product innovation – e.g. Apple, Dyson
 Quality – e.g. M&S clothing
 Product performance – e.g. BMW

Question 7

What are the possible benefits of differentiation?

Answer 7

 Products command a premium price so higher margins.
 Product has fewer perceived substitutes due to product uniqueness and brand loyalty.
Therefore:
 There is less direct competition.
 Demand is less price sensitive (more inelastic).

Question 8

What are the risks of adopting a differentiation strategy?

Answer 8

 Cheap copies.
 Being out-differentiated.
 Customers unwilling to pay the extra (e.g. in a recession).
 Differentiating factors no longer valued by customers (e.g. due to changes in fashion).

Question 9

How do you achieve a focus (niche) strategy?

Answer 9

 Identify a segment of consumers/customers with similar needs.
 Choose whether to adopt a differentiation or cost focus approach.
 Develop products and services to meet the needs of the segment.
 Develop a marketing strategy to specifically target the chosen segment.

Question 10

What are the potential benefits of a focus strategy?

Answer 10

 Smaller segment and so smaller investment in marketing/production is required to develop competitive advantage.
 Less competition.
 Entry is cheaper and easier.

Question 11

Risks of adopting a focus strategy?

Answer 11

 If the segment is too small then it may be difficult to achieve sufficient sales.
 If the segment is too large then the large players may become interested.

Question 12

Question approach

Answer 12

• comment on any data analysis performed
• comment on price
• comment on quality
• discuss market share (targeting mass market?)
• conclude on their position