Porter's Generic Strategies Flashcards
What is Porter’s generic strategies/theory?
They are 2 strategies that can be implemented in a business with the goal of gaining a competitive advantage on the market with the chosen strategy.
The two strategies are differentiation and lowering costs. Business should mainly focus on one of the strategies.
What is the lower cost strategy?
The lower cost strategy aims to gain a competitive advantage by being the lowest cost producer in the industry. Businesses can lower costs through improving efficiency, cutting costs through outsourcing or manufacturing and other methods to save money.
What are advantages of the lower cost strategy?
- gains competitive advantage
- attracts customers who want to spend less
- Can withstand competitors price dropping for longer
- More profit potential
What are the disadvantages of the lower cost strategy?
- customers may see product as less quality due to low price
- cutting costs may lower product or service quality
- if prices are lowered, the business requires high sales to sustain
- challenging is competitors drop prices as well.
What is the differentiation strategy?
the differentiation strategy aims to gain a competitive advantages by being unique and standing out from other business.
They can do this through branding, product features, customer service, product distribution and technology, which can attract customers through their unique offers.
What are the advantages of the differentiation strategy?
- Gains a competitive advantage through customers and brand recognition
- can instill brand loyalty in customers
- unaffected by competitors dropping prices
- potential for more profit through premium prices
What are the disadvantages of the differentiation strategy?
- Uniqueness is often more expensive
- premium prices may turn away potential customers
- possibility of being replicated by competitors, potentially for cheaper prices
- customer preferences may change so the unique part of the business is seen negatively
