8.2 Choosing how to compete Flashcards
(58 cards)
What two aspects will a business decide to compete on when choosing how to compete with other businesses
- Price
- Customer benefits
Price competition example : choosing how to compete
Price : Discount retailers often try to price-match or undercut one another to remain competitive
Customer benefits example : choosing how to compete
Google’s Google Docs and Microsoft Office 365 compete in terms of benefits they can offer customers: both products offer customer email access, digital storage and document editing capabilities
What are Porter’s strategies
- Cost leadership
- Cost Focus
- Differentiation leadership
- Differentiation focus
What do Porter’s strategies measure
- Competitive advantage
- Scope
Cost leadership approach
An approach taken which competes on price, and which seek to be the cheapest retailer or producer within the market
How can businesses increase their competitiveness
- Reducing costs
e.g negotiating better deals with suppliers and producing their own products if this can be done at a lower cost than the cost of buying such products from suppliers - Investing in research, development and innovation so that they continue to increase in terms of the benefit offered to customers
Differentiation approach
Approach taken which competes in terms of the benefits offered to customers from the purchase of its products or services
e.g apple - iOS product and the benefits this can offer to consumers when compared to other operating systems
Stuck in the middle
If a business fails to target customers based on cost or differentiation, Porter’s strategy classifies the business as a concern, known as ‘stuck in the middle’
What factors influence positioning strategy
1) Business competence
2) Presence of competitors
What does Bowman’s strategic clock provide
An alternative approach to positioning, and suggests a range of methods a business can use to remain competitive
The difficulty on competing on both price and customer benefits
Offering products with perceived high value but at a low price, or offering products with low perceived value but at a high price will not offer a realistic or viable position for a business to take; they are destined for failure
Advantage of competitive advantage
- Increase market share and sales revenue as customers are attracted to the business
Disadvantage of competitive advantage
If it cannot be protected, can be copied by competitors who want to share a business’s success, resulting in the competitive advantage no longer existing
What is a competitive advantage
Advantage over competitors gained by offering consumers GREATER VALUE, either by means of lower prices or by providing greater benefits and service that justifies higher prices
Position 1 on Bowman’s clock
Low price and low added value
Position 2 on Bowman’s clock
Low price
Position 3 on Bowman’s clock
Hybrid
Position 4 on Bowman’s clock
Differentiation
Position 5 on Bowman’s clock
Focused differentiation
Position 6 on Bowman’s clock
Risky, High Margins
Position 7 on Bowman’s clock
Monopoly pricing
Position 8 on Bowman’s clock
Loss of market share
The strategy of position 1
Bargain Basement - a business would typically wish to avoid. It represents a situation in which the business is perceived to be selling goods of low value at low prices
