KK6: Porters Generic strategies:

Question 1

Lower cost strategy:

Answer 1

Where a business aims to become the low cost producer in it’s industry by reducing its productivity or delivery costs.

Question 2

ADV of lower cost:

Answer 2

1. Allows businesses to reduce costs, therefore increase sales by being more affordable.
2. Well positioned to withstand price wars from rivals.
3. Can create good corporate culture as employees are more motivated due to increased sales.

Question 3

DISADV of lower cost strategy:

Answer 3

1. Lower customer loyalty as price sensitive customers will swap brands with little hesitation.
2. Can be difficult to maintain competitive advantage as other businesses also look to lower costs.
3. Constantly reducing costs can reduce quality of products.

Question 4

Differentiation:

Answer 4

A strategy which aims in developing a product that is unique and alternative in some way, which therefore is valued by customers.

Question 5

ADV of differentiation:

Answer 5

1. Attracts more customers as the product is unique to the industry therefore increasing sales and profit.
2. Allows businesses to stand out within their industry.
3. Can develop customer loyalty as customers value uniqueness.

Question 6

DISADV or differentiation:

Answer 6

1. Competitors can copy the businesses unique idea.
2. Paying a premium price can exclude some buyers.
3. Can come with higher operation costs if costs to develop the product is larger than the price of the premium.