Porter's Generic Strategy

Question 1

What is Porter’s Generic Strategy?

Answer 1

A business theory which suggests that their are generic business strategies that can be followed to gain a competitive advantage

Question 2

What are the two main strategies suggested in this model?

Answer 2

• Low cost producer

- Differentiation

Question 3

What is the low cost producer strategy?

Answer 3

Being the cheapest business in a certain industry

Question 4

State one reason why a low cost producer strategy can be seen as beneficial

Answer 4

• Build a strong brand image: retain customers and attract new ones
• High sales

Question 5

State one drawback of using a low cost producer strategy

Answer 5

• In order for it to be successful it must be sustained: need to have a steady stream of revenue and a loyal customer base for this to exist
• May require costly promotion to entice new customers

Question 6

How can a business achieve a low cost producer strategy?

Answer 6

• Benefit from the greatest economies of scale

- Create barriers to entry

Question 7

What is a differentiation strategy?

Answer 7

Having a USP to convince consumers to use your business over the lowest cost ones

Question 8

State one reason why a differentiation strategy can be seen as beneficial

Answer 8

• If successful, consumers are willing to pay more and a higher price can be charged

Question 9

State one drawback of using a differentiation strategy

Answer 9

• Needs to be a sustained USP: may require strong market research (expensive)

Question 10

How can a business achieve a differentiation strategy?

Answer 10

• Unique distribution

- Strong customer service (eg, after sales care such as warranty)