Porter's Generic Strategy Flashcards
What does Porter’s Generic Strategy do?
It shows how a business can gain competitive advantage.
Why do businesses need a competitive advantage?
To survive. If a product can be easily copied, competitors can enter the market and take away customers.
What do businesses need to survive?
Competitive advantage, USP, or manufacture goods at low price.
What are the 4 Strategies?
Cost Leadership, Differentiation, Cost Focus, Differentiation Focus.
What is Cost Leadership?
Manufacture products at lowest cost possible to the mass market. (Coca-Cola & AirAsia Budget Airlines)
Advantage of Cost Leadership.
Low Cost -> Large Profit Margin
Disadvantage of Cost Leadership.
- Need to constantly innovate for new methods to keep the low cost.
- Low cost is associated to Low Quality.
How to achieve Cost Leadership?
Economies of Scale
What is Economies of Scale?
Cost advantage business receives from increasing their output.
What is Differentiation?
Manufacturing unique products to the mass market. (BMW Cars, iPhones)
Advantage of Differentiation.
Seen as high quality products so can practice premium pricing.
Disadvantage of Differentiation.
Expensive research and development of unique products.
What is Cost Focus?
Manufacture low cost for niche market. (grocery store in small town)
Advantage of Cost Focus.
Achieve low cost because business has limited number of products and sells in a very small area.
Disadvantage of Cost Focus.
Small market -> Slow growth
