Generic Strategies

Question 1

Porters theory

Answer 1

Concept links for Porter’s five forces model:
- Efficiency
- Market share
- Competition
- Economies of scale
- Disruptive innovation

Reasons why competitive rivalry vary between industries:
- Size
- Structure
- Distribution channels
- Customer needs and wants
- Profitability
- Growth
- Product life cycle
- Alternatives for the consumer

Porters 5 forces model:
1. Competitive Rivalry
2. Supplier Power
3. Buyer Power
4. Threat of Substitution
5. Threat of New Entry

Question 2

Ansoff’s theory

Answer 2

What is the Ansoff matrix:
- A marketing planning model that helps a business determine its product and market strategy
- Market Penetration – The concept of increasing sales of existing products into an existing market. Market Development – Focuses on selling existing products into new markets. Product Development – Focuses on introducing new products to an existing market. Diversification - the name given to the growth strategy where a business markets new products in new markets.

Question 3

Porter’s generic strategy

Answer 3

To find a way of achieving a sustainable competitive advantage over the other competitions products

Why low cost is a source of competitive advantages
- If selling prices are similar, lowest cost operator will enjoy the highest profits
- Lowest cost operator can also offer the lowest prices - gain market share
Suitable markets for this strategy
- standard product
- Minimal product differentiation
- Branding important depending on market

Achieve product quality through
- Superior product quality
- Branding
- Wide distribution across all major channels
- Sustained promotion

Question 4

K’s theory

Answer 4

Architecture:
- Organisational structure, flat = faster coms, tall = expert
- Distribution network/logistics, transport = train, plane how are products moving from a to b
- Communication with stakeholders

Reputation:
- Brand image
- Customer perception
- Word of mouth

Innovation:
- R&D
- Creating a USP

Should not be appropriable - re firms comp advantage should be so distinct it cannot be copied

Question 5

Porter’s five forces model

Answer 5

• A framework for analysing the nature of competition within an industry
  
  • Helps understand and assess industry profitability and attractiveness

Reasons why competitive rivalry (and profits) vary between industries:
- Size
- Structure (organisational)
- Distribution channels
- Customer needs
- Profitability
- Growth
- Product life cycle

Porters five forces:
- Threat of new entrants
- Bargaining power of suppliers
- Threat if substitute products
- Determinants of intensity of rivalry
Explanation of the force:
- If new entrants move into an industry they will gain market share and rivalry will intensify
- The position of existing firms is stronger if there are barriers to entering the market
- If barriers to entry are low then the high threat of new entrants will be high, and vice versa
- If a firms suppliers have bargaining power they will: exercise that power, sell their products at a higher price, squeeze industry profits
- If the supplier forces up the price paid for inputs, profits will be reduced
- Something that meets the same customer need - may swap due to lower costs or supply of unique type of product
- Number of competitors in the market, market size and growth prospects, product differentiation and brand loyalty - Boston Matrix
How does this force impact businesses and the market they operate within?
- Will affect dog walker as barriers to entry are low = increased competition
- Won’t affect pharmaceutical companies are barriers to entry are high = reduced competition
- If supplier has the power then they have limited control over costs
- May lose customers if competitors have lower prices
- Waitrose vs local food store - they aren’t going to feel worried by a small company/not going to change market strategy

1. Bargaining power of suppliers - they can drive up the price for essential products which can cause a lack of profitability due to increased costs
2. Bargaining power is strong in market stalls, weak in markets such are insurance or apple stores
3. Technology market is intense, it impacts businesses as they have high competition which may cause a reduction/loss in sales

Low industry profits associated with:
- Strong suppliers
- Strong customers (buyers)
- Low entry barriers
- Many opportunities for substitutes
- Intense rivalry

High industry profits associated with:
- Weak suppliers
- Weak customers (buyers)
- High entry barriers
- Few opportunities for substitutes
Little rivalry