Porters generic Strategies

Question 1

Porters generic Strategy

Answer 1

-based on the idea that business cannot offer both the lowest price and products that are better than competitors products

Question 2

Lower Cost strategy

Answer 2

-competive advantages is gained through reducing the costs of the business. Allowing it to operate with larger profits margins compared to rivals

Question 3

2 ways business ca use lower cost strategies

Answer 3

Be the industry cost leader and be the low cost producer in the industry:

1. Charge price or near the industry avg and make higher profit margins on each units of outputs

OR

2. Cheaper price than competitors and sell a higher quantity of outputs to increase Market share

Question 4

Lower cost target customers are:

Answer 4

-customer conscious
-happy to buy “generic” goods (not branded)

Question 5

How does the business achieve lower cost strategies: 1.ECONOMIES ON SCALES:

Answer 5

high levels of outputs to reduce cost per unit through reduced capitals (machines) costs and bulk buying.

Question 6

How does the business achieve lower cost strategies: Minimise labour cost

Answer 6

overseas manufacture, introducing tech, outsourcing tasks- to increase speed productions, waste and cost reductions

Question 7

How does the business achieve lower cost strategies: Reduced inputs costs

Answer 7

change raw materials, change suppliers, use lean management to reduce waste

Question 8

Advantages of lower cost stratgies

Answer 8

-Gain competitive advantage

-attracts the price sensetive customer

-can withstand prices wars longer than competitors

-potential to improve profitability

Question 9

Disadvantages of Lower Cost strategies

Answer 9

-Lower price can ‘alienate’ the customer making them think that the product is not of good quality.

-constantly lowering prices may affect the quality of the product

-If prices are lowered, sales volume needs to increase to make substantial profits and meet demands

-Can be challenging over the long term if competeiots continue to lower price

Question 10

Differentiation

Answer 10

differentiating their GS from others in the market

Question 11

Product differentiation

Answer 11

-product is unique and a piont of diff from others in the market

-being unqiue in some way–> design, features, brand image

• achieved through delivery, branding, advertising

Question 12

what would Differentation mean to customers?

Answer 12

-Customers feel a sense of brand loyalty to the product due to its unique characteristics

-Customers are willing to pay a ‘premium’ price for the product, increasing profit

Question 13

Target customer fo differentiation

Answer 13

1. quality consious customers
2. customers who are ready to pay high price for prestige and luxury

3.prepared to pay a high price for convenience

Question 14

How does a business achieve differentiation: Superior Quality

Answer 14

durability and warranties extra features, specialised customer service

Question 15

How does a business achieve differentiation: Offering Quality products that are not avaiable —->R&D

Answer 15

-innovation to create new products
-sourcing a wider range of products

Question 16

How does a business achieve differentiation: Investment in marketing and advertising

Answer 16

to distinguish the business brand form competitors and create brand loyalty.

Question 17

advantages of differentiation

Answer 17

-competitive advantage

-can develop brand loyalty

-reduce price sensitivity (less suspectable price wars)

-may be able to increase profit margin with the premium price.

Question 18

disadvantage of differentiation

Answer 18

-Often more expensive and unique

-Preium price may narrow the customer base

-Possibility to be replaced by competitors

-Changing customers preferences may impact a business’s differntiation advantage.