3.8.2 Choosing How To Compete

Question 1

What is “strategic positioning” ?

Answer 1

How a business is perceived relative to other businesses in the industry

Question 2

What is “Porter’s strategy” ?

Answer 2

Choosing a different set of activities to be able to deliver a unique mix of value relative to competitors and the price paid

Question 3

Which two approaches were identified by Porter ?

Answer 3

• cost-leadership strategy

- differentiation strategy

Question 4

What is “cost-leadership strategy” ?

Answer 4

Achieving lower costs than rivals in the same industry

Question 5

How is cost-leadership achieved ? (With examples) (4)

Answer 5

• lower input costs (e.g owning suppliers, locating near suppliers)
• economies of scale (e.g spread fixed costs)
• increased experience (e.g source cheaper materials, efficient decisions)
• improved product/ process design (e.g budget designs to increase profit margins)

Question 6

What are the benefits of being “cost-leaders” ?

Answer 6

• earn higher returns

- reduce price (still same profit margin)

Question 7

What is “differentiation strategy” ?

Answer 7

Involves offering more benefits than rivals in the same industry

Question 8

What are the differences between “cost-leadership” and “differentiation” ? (3)

Answer 8

• cl with parity involves charging the same price as competitors BUT costs are lower so profit margin is the same
• cl with proximity involves having a lower price but still making same/ higher profit margins
• differentiators charge a high price with the same profit margin if additional charge > cost of providing them

Question 9

What is the competitive scope of a business ?

Answer 9

The amount of the market targeted by strategies

“Focus strategy” - small part of the market or has a narrow scope

OR

A broad scope targets the market as a whole

Question 10

What does Porter advise to do ? (4)

Answer 10

• decide on a generic strategy
• choose a target market (mass market or niche)
• should persue this strategy “rigorously and aggressively”

Can only pick one of each

Question 11

What is “Bowman’s strategic clock model” ?

Answer 11

Bowman’s model plots the the options open to a business on a ‘clock’ in order to analyse the strategic position now vs in the future

Question 12

What are the strategic positions offered by Bowman ? (6)

Answer 12

• differentiating without a price premium - to increase market share (12 o’ clock)
• differentiating with price premium - to increase profit margins (1 o’ clock)
• focused differentiation - for premium price and high quality customers (2 o’ clock)
• ‘no frills’ strategy - focuses on price sensitive segments (7 o’ clock)
• low-price strategy - higher benefits and low prices (8-9 o’ clock)
• hybrid strategies - high benefits and low prices to enter the market and build position (9–12 o’ clock)

Question 13

What is the difference between Porter and Bowman ? (2)

Answer 13

• Bowman focuses on the customer price rather then organisation costs
• Porter provides distinctive choices whereas Bowman highlights the full rand of options

Question 14

What are the influences on positioning strategies ? (3)

Answer 14

• where the competitors are positioned (compete or avoid conflict)
• the external environment (market conditions)
• the strength and competences of the business