Porter's Strategies

Question 1

Define Porter’s Theory

Answer 1

It is a proactive strategic management theory that describes how a business can acquire a completive advantage over its competition within their industry, while aiming to dominate and increase their market share percentage

Question 2

What are the 2 generic strategies any business can use to improve their competitive advantage

Answer 2

1. Lower Cost

2. Differentiation

Question 3

Define the Lower Cost strategy

Answer 3

This is a strategy where the business aims to become the low cost producer within their given industry. By reducing prices the business will aim to attract price conscious customers or reduce their costs to improve their profit margin.

Question 4

Define the Differentiation strategy

Answer 4

The strategy where the business seeks to be unique within its industry in a way that is valued by customers

Question 5

What are 3 strategies to Decrease Costs

Answer 5

1. Implement lean production strategies to minimise waste
2. Dismiss employees or renegotiate their contracts to decrease wages
3. Use economies of scale and bulk buy to decrease the cost of goods

Question 6

What are 3 strategies for a business to Differentiate themselves

Answer 6

1. Provide warranties and other loyalty services to customers
2. Continue to innovate and provide new goods and services
3. Be different in the method of selling the good or service

Question 7

2 Advantages for the Lower Cost strategy

Answer 7

1. Providing low cost goods is viable for large businesses who can afford a smaller profit margin in return for a larger market share %
2. Providing low cost goods makes the competitive advantage for the business strong in industries where the customers are price conscious

Question 8

2 Advantages for the Differentiation strategy

Answer 8

1. Being different allows for the business to provide a good or service that is superior or has unique and attractive features
2. Being different allows for the business to charge a premium price for their goods/services

Question 9

2 Disadvantages for the Differentiation strategy

Answer 9

1. The business is likely to not attract any price sensitive customers which limits their customer base
2. The unique or attractive features can easily be copied by competitors which decreases the edge they hold

Question 10

2 Disadvantages for the Lower Cost strategy

Answer 10

1. Customers are likely to be less loyal to the business as they can easily find a similar good somewhere else
2. Outside customers may associate low cost goods with low quality which can deter them