Porter's strategic mix (development of corporate strategy)

Question 1

Porter’s strategic mix

Answer 1

Identifies the sources of competitive advantage

Question 2

Cost leadership

Answer 2

Involves striving to be the lowest-cost provider in the market

Competitive advantage of being lowest-cost provider in a market:
Able to increase profits while still charging market level prices

Able to increase market share while still charging lower prices

Risk: competitors could try to copy the business’ cost reduction strategies

A firm can achieve the lowest costs by operating on a large scale and thus exploiting economies of scale

Question 3

Differentiation

Answer 3

Involves operating in a mass market with a unique position rather than lowest-cost position

Unlike cost leadership, this can be adopted by any business regardless of their size, provided that it can deliver a way of differentiating itself

A firm can achieve this by adding value to their product by improving:
quality 
design 
brand 
customer service 

Competitive advantage of differentiation:
Can charge premium prices if customers value their unique selling point

Risks:
Can be difficult to guarantee if rewards of differentiation will justify the additional costs.

Competitors can copy- unless they get a patent or trademark

Question 4

Focus

Answer 4

Involves targeting a narrow range of customers in one of two ways

Cost focus- emphasising cost minimisation within a focused or niche market. In which the firm offers a focused range of products at a very low price

Differentiation focus- following different strategies within a focused market.

Advantage:
As they focus on a very narrow segment of the market, they are able to understand their customers and deliver products and services very specific to their needs.

This leads to high level of customer satisfaction and possibly brand loyalty

Less competition and higher profit margin

Risk: as the market is very small, the firm tends to have low bargaining power with suppliers