Porters Generic Forces Flashcards
What are the two basic types of competitive advantage a firm can possess?
Low cost or differentiation
What is cost leadership?
Porters Generic Forces
Business aims to become the low cost producer in its industry
How could a cost leadership strategy arise?
Introduction of a new method of production
Discobvery of a new source of supply that is cheaper than that available to competitors
New technology allowing a business to cut costs
A new method of distribution that lowers costs of transport or rental payments
Improvements in productivity that reduce unit costs
Why is it hard to achieve permanent cost leadership?
Competitors could copy these ideas in the medium term
How can permanent cost leadership be created?
Patent on the process that allows a business to reduce unit costs
Achievement of economies of scale by the business as a result of its scale
Creating barriers to entry that prevent competition from eroding its market
Examples of firms achieving permanent cost leadership
B&Q, Wilkinson and Asda
What is differentiation?
Making the product different from competitors
What are the benefits of differentiation?
Increased sales volume
Greater scope for charging a higher price
What characteristics is cost leadership based on?
Superior permance
Product durability
After-sales service
Design, branding and packaging to improve the attractiveness of a product
Clever promotional and advertising campaigns to boost brand image and sales
Different distribution methods
Examples of differentiation
Amazon using inetrnet selling, Avon selling directly to the customer, Nike and BMW
What is focus from porrers generic forces about?
Picking a segment of the market that is poorly served by the main players in the industry and then adopting either cost leadership or differentiation to target the section/niche
