Porters model of generic strategies for competitive advantage Flashcards
What is his generic strategies model?
Porter suggested 4 generic strategies which can be adopted to gain a comepetitive advantage.
Strategies relate to the extent to which the scope of a business’ activities are narrow vs broad and the extent to which they differentiate their products.
What is the key strategic challenge for most businesses?
Finding a way of achieving a sustainable competitive advantage over competing products & firms in a market.
What did he argue are the effective strategies for firms to gain a competitive advantage?
Differentiation & low cost
What are the different strategies?
Cost leadership
Cost focus
Differentiation leadership
Differentiation focus
What is cost leadership?
- The objective is to become the lowest-cost producer in the industry.
- To achieve this - produce on a large scale which enables them to exploit economies of scale.
What are the features of cost leadership?
- High levels of productivity & efficiency.
- High capacity utilisation.
- Economies of scale
- Offer standard products- little differentiation
- Use of bargaining power to negotiate the lowest prices for production inputs
- Lean production methods (e.g. JIT)
- Effective use of technology in the production process
What are the benefits of cost leadership?
- If selling prices are broadly similar, the lowest- cost operator will enjoy the highest profits.
- Lowest-cost operators can offer the lowest prices & gain market share.
What is cost focus?
- Here a business seeks a lower-cost advantage in just one or a small number of market segments.
- The product will be basic - perhaps a similar product to the higher-priced and featured market leader, but acceptable to sufficient consumers. Such products are often called “me-too’s”.
What is differentiation focus?
- In the differentiation focus strategy, a business aims to differentiate within just one or a small number of target market segments.
- The special customer needs of the segment mean that there are opportunities to provide products that are clearly different from competitors who may be targeting a broader group of customers.
What strategy is differentiation focus commonly used by?
- Its a classic niche marketing strategy.
- Many small businesses are able to establish themselves in a niche market segment using this strategy, achieving higher prices than un-differentiated products through specialist expertise or other ways to add value for customers.
What is differentiation leadership?
The business targets much larger markets and aims to achieve competitive advantage through differentiation across the whole of an industry.
What are the features of differentiation leadership?
- Strategy involves selecting one or more criteria used by buyers in a market - and then positioning the business uniquely to meet those criteria.
- Associated with charging a premium price for the product - often to reflect higher production costs & extra value-added features provided for the consumer.
- Differentiation- charging a premium price that more than covers the additional production costs, & about giving customers clear reasons to prefer the product over other, less differentiated products.
Differentiation leadership
What are the ways in which a business can show to the consumer that their differentiated products are better than non-differentiated products?
Superior product quality (features, benefits, durability, reliability)
Branding (strong customer recognition & desire; brand loyalty)
Industry-wide distribution across all major channels (i.e. the product or brand is an essential item to be stocked by retailers)
Consistent promotional support – often dominated by advertising, sponsorship etc
