4.9 Strategic management by Porter’s Generic Strategies (1985)

what is porters generic strategy

In the 1980s, Michael Porter developed a theory that attempted to explain how businesses may manage change as they attempt to gain a competitive advantage over other businesses.

what are the 2 categories of competitive advantage

cost advantage and differentiation advantage

what is cost advantage

a competitive advantage is gained through reducing the costs of the business, allowing it to operate with larger profit margins compared to its market rivals

what are the 3 main ways of acheiving low cost

• Use assets efficiently by minimising idle stock on shelves

• Lower costs of operating by sourcing supplies from cheaper suppliers, minimise wage costs

• Control the supply chain by seeking contracts with suppliers and delivery businesses that guarantee prices.

advantages of low cost

increased profit, attracts price sensitive customers, can withstand price wars longer than customers

disadvantages of low cost

constantly lowering costs may impact product quality, lose market share if businesses copy, lowering costs mean little room to make changes in the future

what is differentation

where businesses gain a competitive advantage through differentiating their good or service from others in the market by making it unique

ways of achieving differentation

• high quality products by ensuring that quality is better than that of competitors

• multiple branding by providing different brands or more brands in the same market.

• innovation/research and development by developing a product with unique features that no other business currently produces.

advantages of differentation

increases customer loyalty, able to charge a premium price increasing profit, increased market share

disadvantages of differentation

rival businesses can copy the differentiated approach,high initial cost, differentiation can be time consuming and in that time consumer tastes and preferences may change