Porter generic strategies Flashcards
What is porter generic strategies?
Outlines ways in which business can gain competitive advantage, every business needs comp adv to prevent profits taken by rivals
What is a competitive advantage?
Positive attribute or trait that sets business apart from competitors, enables firms to outperform rivals
What is cost leadership?
Involves business being lowest cost business in industry, 2 leadership strategies:
- Cost purity - charge same price but same cost of production thus higher profit margins
- Cost proximity - Lower cost than competitors thus higher volume of sales
What is differentiation?
Firms makes good and services distinct from competitors in way that appeals to consumers, establishes USP for business or product.
ADV of differentiation?
- more attractive due to USP
- remain price charged
- More responsive to needs and wants
- Customer / brand loyalty
- Reduces degree of rivalry
DIs of differentiation?
- expensive strategy, increase cost of prod
- innovation and creativity needed for added value of product
- substantial marketing investment required
What is cost focus?
Focusing on low cost producer in niche market
What is focus differentiation
Focusing on market segment with specified high end products
Adv of focus differentiation
High profits with lack of competition
Premium price means higher profit margins
Brand loyalty established
Dis of focus differentiation
Small size market means limited customer base
What does being stuck in the middle mean?
Not sustainable for firms to operate in mix of strategies for long term success, firms cannot expect high profits and have reputation for quality products whilst charging low prices
Adv of porter’s generic strategies?
Straightforward and easy to apply
Choice and flexibility as internal and external environmental factors change over time
Dis of porter’s generic strategies?
Not practical for firms to make strategy due to financial risk
Large firms can focus on more than one
No guarantee for success
Not sustainable if firms don’t adapt to change in environment
