choosing how to compete

what are porters genetic strategies

• main focus of model involves giving firms strategic options based on the markets they operate in

• theory states that to develop a sustainable competitive advantage and earn high profits must adopt one of two possible strategic positions: cost leadership and differentiation

what are the four areas of porter’s strategies

1. cost leadership

2. cost focus

3. differentiation

4. differentiation focus

what is cost leadership 

• business aims to be a low cost producer through tight control of costs

• this is to reduce cost so they can charge lower prices so they can have high sales

what is differentiation

• businesses compete on product/service rather than price

• they aim to offer a unique selling point to stand out from rivals 

what is focus

• a firm may pursue cost leadership or differentiation but in a niche market aiming at a smaller target audience 

• e.g. Porche

key influences on choice of a positioning strategy 

• scale of business

• strategic capability and strength of business

• customer perceptions

• customer base

• values of customer base

• sustainable differentiation

• market factors

• competitor analysis

• pestle factors

• stakeholders

when does a competitive advantage occur

when value to greater than the cost of suppling and is superior to other businesses

key influences on the firms choice of strategic positioning

1. previous strategic positioning and existing brand image

2. existing customer perceptions

3. stage of the life cycle

4. rivals’ strategic positioning

5. the external environment

6. the firm’s key strengths, assets and competences

• Business objectives (profit vs growth)

• Resources available (finance, skills, technology)

• Market structure (level of competition)

• Customer expectations

• Nature of the product

• Strength of competitors

• Stage of the product life cycle

what areas does a business need to choose what to compete in

• Low price → cost leadership

• High perceived value → differentiation

• Specific niche → focus strategy

what are sources of competitive advantage

• Lower costs

• Strong brand

• Patents

• Innovation

• Skilled workforce

• Customer loyalty

benefits of competitive advantage

• Higher profits

• Increased market share

• Greater customer loyalty

• Reduced competitive pressure

• Stronger long-term survival

difficulties of competitive advantage

• Higher profits

• Increased market share

• Greater customer loyalty

• Reduced competitive pressure

• Stronger long-term survival