4.2 Flashcards
What is the Porter’s Five Forces model?
Analyses the competitive power of a business in the market in which it operates.
More competitive power = more profitable products
What are the Porters Five Forces?
Degree of rivalry
Threat of new entrants
Threat of substitute
Bargaining power of buyers
Bargaining power of suppliers
What are the advantages of the Porter’s Five Forces model?
Insight into profitability of a market, determines attractiveness of a market before entering or exiting it.
Compares impact of competitive forces on a business and rivals
Analyse a businesses competitive power, strategies developed to increase ability to compete
What are the disadvantages of the Porter’s Five Forces model?
Need qualitative and quantitative methods to gain full understanding of the market structure
More suitable for use in a simple market
Not suitable for long-term planning
Does not provide a comprehensive understanding of a market
What are the factors of a Boston matrix?
Identifies position of each product within its portfolio
Makes comparisons or judgements with regard to its position in the market
Focusses on market share and growth of the business
Reviews how much the product costs and contributes to the overall business
What are the 4 sections in a Boston matrix?
Stars
Cash cows
Dogs
Question marks
What is a star in the Boston matrix?
May need heavy investment to sustain market share but have potential to become cash cows
What is a cash cow in the Boston matrix?
Doesn’t need heavy investment and are likely to generate profits and positive cash flow
What is a dog in the Boston matrix?
Generates low profits or even losses and may become cash traps. May be advisable to discontinue, rather than invest in them
What is a question mark in the Boston matrix?
Presents challenge - with further investment they may become cash cows, but equally they may turn into dogs
What are the advantages of a Boston matrix?
Simple, visual representation of the market position of each product
Overall picture of a business’s portfolio in their current position
Easier to see where decisions about future strategies should be made
What are the disadvantages of a Boston matrix?
Too simplistic to use for strategic decision making. Need more than market share and market growth
High market share does not mean high profitability
Market growth is not the only indicator of how attractive an industry is.
‘Market’ can be defined in different ways
What are the 4 sections in the Porter’s generic Competitive Strategies?
Cost leadership
Differentiation
Cost focus
Differentiation focus
What is cost leadership?
Business’s increase profits by reducing costs and increasing its market share. Should enable the business to charge lower prices, while retaining profits
What is differentiation?
Customers purchase a particular business’s goods and services rather than a competitor’s because they perceive it as being better and unique in the market.
