Section Eleven • Choosing Strategic Direction - Positioning Strategies

Question 1

Explain strategic positioning (2 bullets)

Answer 1

1) Strategic positioning means choosing how to compete with the other businesses in the market.
2) Different positioning strategies work for different companies. It is important to choose the right strategy. It should play to the company’s strengths and give them a competitive advantage. The wrong positioning strategy can be disastrous - value products with too high a price and luxury products with too low a price will fail.

Question 2

What are the two types of competitive advantage Porter identified?

Answer 2

Cost advantage and differentiation advantage

Question 3

Explain cost advantage (2 bullets)

Answer 3

1) A business can get a competitive advantage by selling a similar product at a lower cost than its rivals.
2) Low-cost airlines like EasyJet and Ryanair use a “no frills” strategy to keep their costs at a minimum
-they use cheaper airports like Luton and cut out travel agents’ fees by using online booking.

Question 4

Why is having a competitive advantage great for a company?

Answer 4

• They’ll either sell a high volume of products at a low price and make a large profit, or they’ll be able to sell enough products at a high price to make a large profit.
• A competitive advantage can also build brand loyalty - customers associate the particular advantage with the brand, which makes them more likely to choose that brand in the future.

Question 5

Explain differentiation advantage

Answer 5

1) Selling better products at the same or a slightly higher price creates a competitive advantage.
2) Offering a product that consumers see as different from competitors’ products can make consumers think it’s better. This is called product differentiation.

Question 6

Why can holding onto a competitive advantage be tricky?

Answer 6

Maintaining low cost production might be difficult. **Competitors can lower their prices or copy your unique features. Consumer tastes can change, and a changing economy can alter the demand for luxury or value products. Businesses need to continuously monitor both internal and external factors in order to keep their advantage.

Question 7

What three generic strategies did Porter suggest to** gain advantage?**

Answer 7

Cost leadership, differentiation and focus

Question 8

Explain cost leadership (2 bullets)

Answer 8

1) Cost leadership strategy calls for the lowest cost of production for a given level of quality. Big firms with large and efficient production facilities, benefiting from economies of scale, can use this strategy.
2) In a price war, the firm can maintain profitability while the competition suffers losses. If prices decline, the firm can stay profitable because of its low costs.

Question 9

Explain differentiation (3 bullets)

Answer 9

1) Differentiation strategy requires a product with unique attributes which consumers value, so that they perceive it to be better than rival products. Unique products allow businesses to charge premium prices.
2) Businesses that are innovative, have strong branding and offer quality products can benefit from this strategy.
3) Risks include imitation by competitors and changes in consumer tastes.

Question 10

Explain the focus strategy. (2 bullets)

Answer 10

1) Focus strategy concentrates on niche market segments to achieve either cost advantage or differentiation.
2) This strategy suits firms with fewer resources who can target markets with specific needs. A firm using this strategy usually has loyal customers, making it very hard for other firms to compete.

Question 11

What does Porter’s Generic Strategies look like?

Answer 11

Question 12

Explain how **Porter’s generic strategies **help a business choose its positioning strategy.

Answer 12

Porter’s strategic matrix helps a business choose its positioning strategy based on its competitive advantage and its market scope.
A business can place itself in a particular section depending on whether it’s aimed at a broad or **narrow market **(also known as a niche market, see p.39), and whether it offers cheaper products than competitors or unique, quality products.

Question 13

What is Bowman’s Strategic Clock?

Answer 13

Bowman’s strategic clock shows different positioning strategies based on different combinations of price (from low to high) and perceived added value or benefits (also from low to high).
It shows that some positioning strategies are likely to be more successful than others.

Question 14

What does Bowman’s clock look like?

Answer 14

Question 15

Explain position 1 of Bowman’s strategic clock.

Answer 15

Position 1 corresponds to a strategy of low price products with low added value - this will only be successful if the products sell in a high volume.

Question 16

Explain **position 2 **of the Bowman’s clock

Answer 16

4) Position 2 corresponds to the cost leadership section of Porter’s strategic matrix.

Question 17

Explain **position 3 **of the Bowman’s clock

Answer 17

5) Position 3 is the **hybrid area - modest prices with a relatively high perceived added value.

Question 18

Explain** position 4 and 5** of the Bowman’s clock

Answer 18

6) Position 4 corresponds to the differentiation section of Porter’s strategic matrix, and position 5 corresponds to the differentiation and focus section.

Question 19

Explain **position 6-8 **of the Bowman’s clock

Answer 19

7) Positions 6-8 (the grey area) combine a high price with fairly low perceived added value. Unless a company has a monopoly, if it adopts these positioning strategies it will ultimately fail.