porters strategic matrix

Porters strategic matrix

How a business can gain and sustain a competitive advantage

Cost leadership,differentiation leadership,cost focus, differentiation focus

Stuck in the middle

Cost leadership

Selling at the lowest cost in market- often through large sale production and cost control

Beinfits of cost leadership

Can charge lower prices than co petitions- attract price sensitive customers- increases sale volume- econmies of scale- rescuing average costs further-strengthens competitiveness

Higher market share potential- customers switch to cheaper product- market share rises - increases brand presence

Can survive price competition- low cost business is better able to cope with price wards because sits costs are already low meaning profit margins Amy still remain positive when rivals struggle

Limitation of cost leadership

Profit margins may be low-each unit sold generates less profit- business must sell very large quantities to maintain total profit

Cost cutting may reduce quality- lower cost material or cutting staff reduces quality causing customer dissatisfaction and damage reputation

Differentiation leadership

Offering products that customers see as unique or superior across whole market

Beinfits of differentiation leadership

Can charge premium prices- if customers see added value- they may pay more- higher prices can increase profit margins and improve profitability

Builds customer loyalty- unique brand makes repeat purchases more likely

Less direct competition - customers focus more on quality or brand image rather than price- avoid price wars

Limitations of differentiation leadership

Higher marketing and development costs - creating uniqueness often needs avertsiing- innovation spending- increasing costs

Customer preferences may change- lose appeal later on -reducing demand

Competitors may imitate features- copy successful ideas-reducing uniqueness and wreaking advantage

Cost focus

A business targets a small niche market using low prices

Beinfits of cost focus

Low prices appeal strongly to niche segment-business can dominate a narrow market where customers mainly blazer affordability

Lower costs from specialisation- focussing on one segment may improve efficiency because production is highly targeted

Less direct competition- larger firms may ignore smaller niche markets-giving the business more control

Limitations of cost focus

Small market limits growth- narrow customer base restrict total sales potential

Very sensitive to demand changes- marker declines- revenue may fall sharply

Differentiation focus

A business targets a niche market with a unique specialised product

Beinfits of differentiation focus

Stronger customer loyalty-specialist customers often value products that closely meet their needs- encouraging repeat purchases

Can charge very high prices- specialised value often allowed premium pricing- improving argon’s

Reduced competition- fewer firms may have the expertise to serve niche well

Limitations of differentiation focus

Limited customer base- sales volume may remain low because only a small segment wants the product

High dependency on one niche- changes in niche can be critical

Specialist costs may be high- products highly tailored products can increase unit costs

Stuck in the middle

Business fails to chooser a clear strategy so it is neither low cost nor clearly differentiated

• no clear competitive advantage- customers Amy not see a reason to choose business over rivals

• Weak profitability- without clear positioning sales may fall while costs remain high

Distinctive capabilities

Kay identified that businesses gain a competitive advantage through three disc tincture capabilities which are Diffcult for competitors to imitate

Archetewcture, reputation and innovation

Architecture

Refers to strong relationships with employee,supplies,partners and customers that imporve efficent and trust

Can maintains high quality why reducing cost

Reputation

The postive brand image a business builds over time through quality reliability and customer loyalty

Innovation

Developing new products,process or ideas that give a business a competitive edge