Business Management U4 AOS 1 - Business Change

business change - definition

Business change is the alteration of behaviours, policies and practices of a business.

business change - extra info

• Businesses are constantly evolving and adapting to improve their performance in certain areas, which can impact the whole organisation of specific areas.

• Strong leadership and management skills are required for the successful execution of business change.

• Example: computer-aided manufacturing affects operations; new enterprise agreement affects all employees.

• Employees and other internal stakeholders’ support is crucial for smooth implementation of a new set of business operations.

• When business change isn't managed optimally, this can result in high levels of resistance.

outcomes of business change

• Business change can have both positive and negative effects. E.g. APLs may improve efficiency but cause employee redundancies.

• Change that is undertaken to improve performance in one area may adversely affect another area of a business.

• To review the success of business change and determine its effect on performance, businesses use KPI's.

Proactive response to business change - definiton

is when a business changes to avoid future problems or take advantage of an opportunity to gain a competitive advantage.

proactive response to business change - extra info

• Business may change to fulfil a gap in the market, recognise a change in the market trends which poses a new business opportunity, or invest in new tech to avoid areas of the business becoming outdated.

• Taking an proactive approach to change can reduce pressures on the business as undertaking this transformation allows for the change to be implemented in a calmer, more controlled manner.

reactive response to business change - definiton

is when a business undertakes changes in response to a situation or crisis.

reactive approach to business change - extra info

• Reactive change can occur when a competitor releases a new product that takes up a large portion market share, or there are controversial problems covered by the media. However, most businesses will often try and avoid reactive change.

• Reactive change is often urgent and unplanned, driven by the need to stay competitive or to protect the business’s reputation. E.g. quickly responding to a publicised data breach.

similarities between proactive and reactive approaches to change

- both approaches are utilised by a manager or business to implement change

- both approaches involve the business undertaking change for future benefits, such as growth, progression and to improve or restore its brand image

- both approaches require the support of a manager, who must utilise management and leadership skills if the change is to be implemented successfully

- both approaches can be used to respond to stakeholder conflicts

differences between proactive and reactive approaches to change

- proactive change occurs when a business takes advantage of an opportunity and avoids future problems, whereas reactive change occurs in response to a situation or crisis that is essentially forcing the business to change

- proactive change often involves the use of low risk strategies, whilst reactive change usually involves the use of high risk strategies

- proactive change is more planned, coordinated and controlled, with fewer pressures acting on the business throughout the change, while, reactive change is more spontaneous, urgent and pressured.

key performance indicators (KPI’s) - definition

are criteria that measure a business' efficiency and effectiveness in achieving its different objectives.

key performance indicators (KPI's) - extra info

• Continuous usage of KPI’s can help businesses assess performance in various areas such as finances, the quality of customer interactions, and environmental impacts.

• KPI’s can be used to identify areas where specific change is needed, and can continuously measure the success of implemented changes as well.

• For KPI’s to be used effectively, it must be relevant to the area of the business being analysed, a reliable measure of performance, and be used to compare business performance over time.

the 10 different KPI's

• percentage of market share

• net profit figures

• rate of productivity growth

• number of sales

• number of customer complaints

• rates of staff absenteeism

• level of staff turnover

• number of workplace accidents

• level of wastage

• number of website hits

percentage of market share - definition

measures the proportion of a business’s total sales, compared to the total sales in the industry, expressed as a percentage figure.

percentage of market share - extra info

• Percentage of market share measures how much of the total industry sales a business holds compared it its competitors, which can indicate a business’s impact, how well it’s performing and its success in the market/industry.

• A high percentage of market share shows a large share of total industry sales, whereas a low percentage of market share shows that a business has a small share of total industry sales.

• percentage of market share = a business' total sales / total sales of the industry x 100

net profit figures - definition

are calculated by subtracting total expenses incurred from total business revenue earned, over a specific period of time.

net profit figures - extra info

• Net profit figures can help a manager analyse a business’s financial performance to assess whether expenses are too high or revenue is too low. 

• Making a profit is a common objective for all businesses, therefore net profit figures can evaluate a business’s successs in achieving this objective and its financial performance.

• High net profit supports growth, investment, and shareholder expectations, while low net profit may indicate difficulty sustaining operations.

• net profit figures = total revenue - total expenses

rate of productivity growth - definition

the change in the total output produced from a given level of inputs over time, expressed as a percentage figure.

rate of productivity growth - extra info

• A business relies on the level of productivity to provide goods and services to customers in an efficient manner. A high level of productivity indicates that a business is capable of producing a high amount of outputs from a minimal number of resources used as inputs.

• A high rate of productivity growth indicates that a business has become efficient over time, as it can better utilise its resources in its production process. 

• A negative/low rate of productivity growth indicates that more inputs are needed to produce the same number of outputs; thus, a business is not efficient.

• rate of productivity growth = new productivity - old productivity / old productivity x 100

productivity

the number of goods or services that are produced compared to the number of resources used in the production process.

number of sales - definition

the total quantity of goods and services sold by a business over a specific period of time.

number of sales - extra info

• A business’s financial performance can be measured by the number of sales, as it reflects customer reception of a business’s products or services.

• High number of sales indicates a high level of customer satisfaction, whereas a low number of sales can suggest that customers are dissastisfied witg a business’s products.

• A decrease in the number of sales may imply a decrease in a business' market share, or that customers are not purchasing as many products.

•  A business may analyse its number of sales to determine if it is able to achieve its financial objectives.

Number of customer complaints - definition

the number of customers who notified the business of their dissatisfaction over a specific period of time.

number of customer complaints - extra info

• The number of customer complaints indicates the level of customer satisfaction and engagement with the goods and services they purchase.

• A high number of customer complaints suggests customer dissatisfaction, whereas a low number indicates customer contentment.

• Businesses should receive and act on the feedback provided by customers, as their support or lack thereof can be the difference between a business' success or failure.

• Customers may choose to provide feedback in a variety of ways (eg: verbalising their complaints in store)

rate of absenteeism - definition

are the average number of days employees are not present when scheduled to be at work for a specific period of time.

rates of staff absenteeism - extra info

• Staff absenteeism may be due to illness, personal leave, or applying for work elsewhere, which can cost a business in productivity, time and finances.

•  A human resource manager would examine the rates of staff absenteeism as an indicator of staff morale.

• High rate of staff absenteeism may indicate that employees are unmotivated and dissatisfied with their working conditions and/or have poor relations with managment.

• High staff absenteeism can disrupt a business by halting workflow, causing production delays, and reducing profits. It is also costly, as absent employees often need to be replaced with casual staff.

• Low rates of staff absenteeism indicate that employees are highly motivated and have a high level of morale, which can improve productivity, business reputation, and overall corporate culture.

• Rates of absenteeism calculation = Total number of days all staff are absent for a period of time/total number of staff.

level of staff turnover - definition

is the percentage of employees that leave a business over a specific period of time and must be replaced

level of staff turnover - extra info

• A HR manager can use level of staff turnover to assess employee morale, satisfaction and the strength of interpersonal relationships within the business.

• While moderate staff turnover is healthy for business innovation and growth, high turnover often indicates dissatisfaction with management, pay, or conditions. 

• It can reduce productivity, increase recruitment and training costs, and harm the business’s reputation, thus limiting the pool of candidates that apply for an available position, which can potentially jeopardise the business’s future opportunities for development and growth.

• Low turnover signals employee satisfaction with their pay and working condition, making the business more attractive to top-quality candidates and enhancing its status as an employer of choice.

• Level of staff turnover calculation = Total number of staff leaving over a period of time/ Total number of staff required.

number of workplace accidents - definition

measures the amount of injuries and unsafe incidents that occur at a work location over a specific period of time

number of workplace accidents - extra info

• A high number of workplace accidents indicates an unsafe working environment, raising a major concern for HR as they are responsible for employees’ wellbeing.

• A high number of accidents can lead to low staff morale, low motivation, higher absenteeism and turnover as employees feel that their safety is not prioritised.

• Can stop production, reduce efficiency and effectiveness, and harm reputation.

• Low workplace accidents indicates a safe, comfortable, and efficient workplace with well-trained staff focused on health and wellbeing.

• Workplace accidents can occur due to: old or faulty equipment, poorly trained employees, the dangerous nature of work tasks, or unsafe working practices.

level of wastage - definition

is the amount of inputs and outputs that are discarded during the production process

level of wastage - extra info

• High levels of wastage increase costs, time and raw material use, reducing profits and harming the business’s reputation and overall performance in terms of environmental sustainability and CSR.

•  However, a low level of wastage can reflect an extremely efficient and cost-effective production process and a business that values sustainability, therefore enhancing overall performance.

number of website hits - definition

is the amount of customer visits that a business’s online platform receives for a specific period of time.

number of website hits - extra info

• This can be a useful indicator of a business’s customer engagement and customers’ overall interest in the business and its products.

• A high number of website hits indicates strong business-customer relationship, effective marketing, and an appealing and efficient online presence that can boost sales and future growth.

• In contrast a low number of website hits can suggest a weak or poorly designed website that limits customer interaction, purchases and business performance.

• The number of website hits also provides valuable and analytical data on consumer interest, popular products or business areas, making it an important KPI in today’s technology-driven world, where a business’s development and performance can be harmed if not used effectively.

Force field analysis - definition

a theoretical model that determines if a business should proceed with a proposed change.

force field analysis

• The model identifies and examines factors that promote or hinder the change from being successful.

• Factors can be classified as driving or restraining forces.

• Driving forces are factors affecting the business environment that promote and support business change.

• Restraining forces are factors that resist a business change or actively try to stop it.

• Lewin’s Force Field Analysis involves identifying, weighting, and ranking driving and restraining forces, implementing strategies to address them, and evaluating the outcomes.

• This step-by-step process helps businesses clearly analyse forces affecting change and improve the likelihood of successful implementation.

the process of force field analysis

• The principles of Lewin's force field analysis theory are conducted in a step-by-step process, starting from weighing the forces, then ranking the forces, implementing a change and finally evaluating the response.

• Following these steps helps a business make a clear analysis of the driving and restraining forces of the proposed change, in order to respond to them and ensure the successful implementation of the change.

weighting - definition

is the process of scoring and attributing a value to the driving and restraining forces.

weighting - extra info 

• The business first identifies the driving forces that promote and the restraining forces that resist the proposed change, weighting to measure each force’s impact on a scale of 1 (low) to 5 (high).

• The weight attributed depends on the degree to which the force is connected to, or affected by, the change.

• For example, if a proposed change relates to a product, customers may be greatly affected by the change so their weight as a restraining force may be stronger.

• Weighting will also be influenced by any existing issues relating to each force (eg: employee morale = low, employees = greater weighted restraining force)

ranking- definition

involves arranging the forces in order of value and determining the total score of driving or restraining forces

ranking - extra info

• After weighting, the overall scores for driving and restraining forces are totalled and ranked in order.

• This helps determine whether the driving forces are strong enough to overcome the restraining forces.

• For change to be implemented successfully, driving forces must outweigh the restraining forces.

• If restraining forces outweigh driving forces, the business must take action to ensure the success of the proposed change by determining driving forces that can be most easily strengthened further, and which restraining forces are most important to be removed or minimised.

implementing a change

• After ranking the forces, the business implements a response based on which forces are stronger. Successful change is only likely to occur when driving forces are stronger than restraining forces.

• This stage involves action that can be taken to strengthen the driving forces, reduce the restraining forces or the actual execution of the change.

• An action plan should be developed, outlining tasks, responsibilities, required resources, and deadlines, as well as strategies to continually reinforce driving forces and weaken restraining forces throughout the implementation process.

evaluating the response

• Evaluating the response is the final stage of FFA and involves assessing whether the change was successfully implemented.

• This stage compares the actual change to the anticipated change to determine if further action needs to be taken.

• Both positive and negative consequences can arise from business change. (eg: cost cutting to improve profit margins, but at the expense of staff satisfaction).

• Businesses can use KPIs to measure success; if targets and objectives are met, the change is effective. If not, the FFA may need to be redone because restraining and driving forces may have changed.

advantages of force field analysis

• the FFA may lead to a change being more likely to be successful, positively affecting employee morale

• businesses can save time by promoting the main driving forces and limiting the main restraining forces

• businesses can save money by only implementing changes where success is likely

disadvantages of force field analysis

• can be time consuming, especially if a business is already aware of the need for a mandatory change. (eg: a change is required for legislation)

•  conducting the analysis will require the business' resources, at a cost to the business. (eg: employees taken away from their jobs to conduct the FFA)

driving forces - definition

are factors affecting the business environment that promote and support business change

driving forces - extra info

• Driving forces work in favour of the change and guide the business towards change implementation.

• Successful change is more likely to occur when the driving forces outweigh the restraining forces.

• Driving forces may stem from both the business' internal and external environment, and arise from different parts of the organisation (eg: human resources).

the 11 driving forces

• owners

• managers

• employees

• pursuit of profits

• reduction of costs

• competitors

• legislation

• globalisation

• technology

• innovation

• societal attitudes

owners as a driving force

• Ownners are the highest form of management within a business.They make large-scaloe decisions for the future of the business.

• They have a vested interest in the ability of the business to meet its objectives and continue to adapt, as well as in its longevity and success.

• As a result, owners may actively seek out and support change in order to remain competitive in the business' rapidly and continuously changing environment.

• They are also interested in the financial performance of the business as they receieve profits/income from its operations.

• Due to these interests, owners can act as a driving force for change if they believe change will be beneficial to future business performance.

managers as a driving force

• Managers ensure business performance is optimised and objectives are being achieved.

• They are responsible for overseeing the implementation of policies, procedures, and long-term goals of the business in its daily operations.

• Managers can be a driving force for change when the proposed change will enhance the business’s ability to meet objectives.

• Managers can set an example for other employees to follow when they are in support of a change, as their management style, attitude, and leadership can encourage successful change implementation.

• Managers are concerned with their job security and financial incentives; therefore, their approach to their management role and personal interests can guide the business to seek opportunities for change.

employees as a driving force

• Employees are vital to the business as they are responsible for achieving the business’s objectives.

• They also have a personal interest in the performance of the business as they are provided with a job and income.

• Employees focus on aspects like working conditions, training, wages, and benefits.

• Employees can be a driving force for proposed changes that improve their work environment.

• Employees may also seek to improve business processes to enhance productivity.

pursuit of profits as a driving force

• A primary objective of all businesses is to make a profit

• Businesses are encouraged to implement changes that improve their financial performance.

• Successful changes can help businesses fulfil other obligations, such as providing returns of profits to its shareholders.

• Businesses must adapt to rapidly changing market they operate in, where declines in revenue may prompt businesses to explore new opportunities for change to remain profitable.

• Therefore, the pursuit of profits can act upon a business as a driving force for change.

reduction of costs as a driving force

• all businesses should aim to reduce operational costs.

• The reduction of costs can act as a driving force, as businesses may implement change to improve efficiency and effectiveness, and reduce unnecessary costs that may arise in business processes.

• Strategies like reducing wastage or improving productivity help lower costs and increase net profit figures.

• A business may seek to source cheaper materials or relocate to benefit from less expensive rent as a means of reducing costs and improving profits.

competitors as a driving force

• Other businesses within the same industry that sell similar goods or services to a business.

• Competing against rival businesses is a core aspect of operating a business. If a business fails to compete within its respective market, it will struggle to survive.

• Companies must respond to changes made by rival firms/competitors.

• When competitors change prices, use new technology, or run advertising campaigns, this can affect the performance of other businesses in the market.

• This makes competitors a driving force for change, as a business must always adapt to remain competitive.

legislation as a driving force - definition

laws and legal regulations that a business has to follow.

legislation as a driving force - extra info

• All businesses are required to comply with laws and regulations to avoid fines, suspensions or even closure.

• A business may be forced to change if new legislation is introduced.

• If current operations breach the new legislation, a business will have no choice but to change the way it operates.

• As current laws are constantly being amended and new laws are continuously being introduced, legislation is a constant driving force for change.

globalisation as a driving force - definition

the process by which governments, businesses and people across the globe are becoming more interconnected, allowing for increased international trade and cultural exchange.

globalisation as a driving force - extra info

• Incresing globalisation trend has led to more businesses to operate on a global scalre due to the removal of trade barriers.

• Free trade creates a single global market, increasing pressure from international competition. 

• Globalisation allows for goods to be produced in different parts of the world, allowing businesses to take advantage of economies of scale and produce goods more efficiently and cheaply.

• This often results in prices being driven down in the market as businesses can afford to lower their prices.

• Cultural globalisation exposes customers to goods and services from different cultures, influencing demand.

• Cultural globalisation provides opportunities for businesses to expand internationally.

•  Businesses that fail to recognise that it’s competing in a global market will likely not survive.

technology as a driving force - definition

the application of scientific knowledge to invent new devices, tools systems or processes.

technology as a driving force - extra info

• As technology is constantly progressing, it will always act as a driving force for change.

• Technology helps businesses increase the efficiency and effectiveness of their operations, cut costs and improve productivity.

• Examples of technology to improve a business’s operations system include APLs, robotics, CAD, CAM, AI, and online services.

• Businesses should take into consideration relevant technological advancements when producing goods and services, such as facial recognition systems, 5G technology, and electric cars which have driven change.

• If a business fails to adopt suitable technology, it may impact its ability to compete and survive.

innovation as a driving force - definition

the process of altering and improving or creating new products or procedures.

innovation as a driving force - extra info

• with constant pressure from competitors, businesses should always aim to improve existing products and services or introduce new ones.

• many businesses will continuously innovate their products or procedures in order to increase sales and market share.

• since businesses are always looking for ways to improve their products to gain a competitive edge, innovation will always act as a driving force.

societal attitudes as a driving force

• the collective values, beliefs and views and the general public

• Businesses must adapt to changing societal attitudes and values to remain successful.

• The internet has made it easier for society to be more aware of how businesses are operating, meaning that failure to adapt to the changing environment can result in the business losing sales and profits.

•  EXAMPLE: The COVID-19 pandemic has had a significant impact on society’s views on hygiene and cleanliness. Now, businesses must ensure they implement appropriate cleaning processes to keep customers safe and prevent the spread of the virus.

• The increasing trend of individuals becoming health-conscious has led to businesses offering healthier and more sustainable products. 

• As societal attitudes are constantly evolving, they will always act as a driving force for business change.

restraining forces - definition

are factors that resist a business change or actively try to stop it.

restraining forces - extra info

• If restraining forces exceed driving forces, a business change is unlikely to be successful

• For a business change to be successful, businesses have to implement strategies to overcome the relevant restraining forces.

managers as a restraining force

• Managers are the owners, leaders, or upper management within a business that often introduce change.

• Although managers are often a driving force, they may also act as a restraining force for business change.

• Managers may be unwilling to introduce a business change if they do not support the change. managers may not support a change if they do not believe the change will be beneficial for the business’s performance, or if the proposed change threatens their position.

• It is difficult to overcome managers as a restraining force, as they are essentially in charge of the business; hence, negotiating a compromise or alteration to the initial proposal may be necessary.

employees as a restraining force

• Employees are the individuals who perform work tasks for the business and can be both a driving force and a restraining force for business change.

• Employees may resist a business change if the outcome is uncertain, they fear they cannot adapt, it affects their job security or work routine, or they fail to see a reason for the change.

• Employees may even actively oppose these changes by carrying out industrial action. (steps taken by employees or employers to settle a workplace dispute - eg, employees refusing to work).

• To overcome employee resistance, managers often need to persuade staff or provide incentives to encourage acceptance of change, demonstrating strong leadership and management skills in the process.

legislation as a restraining force

• Legislation can both be a driving force and a restraining force for business change.

• Businesses must ensure they comply with laws and regulations to avoid fines, suspensions, or even closure.

• Legislation can prevent a business from implementing business change and thus act as a restraining force.

• Therefore, a business must consider the types of legislation that apply to any proposed business change.

• To overcome legislative restraining forces, a business may need to apply for licences, obtain permits, or modify contracts and agreements to ensure legal compliance.

• However, some legislative barriers may be impossible to overcome.

legislation affecting competitors

→ Competition and Consumer Act

→ Intellectual property laws

legislation affecting customers

→ Pricing displays and regulations

→ Product labelling

→ Warranties and refunds

→ Privacy laws

legislation affecting employees

→ Pay and conditions

→ Worker’s Compensation Insurance

→ Occupational Health and Safety

→ Anti-bullying and harassment

→ Unfair dismissal laws

legislation affecting environment + suppliers

→ Environmental licences and permits

Suppliers:

→ Contracts

→ Importing and exporting laws

organisational inertia

• The tendency for a business to maintain established ways of operating.

• A business may have been operating in a certain way for such a long time that it can become difficult for change to occur.

• When a business matures and grows in size, processes and procedures often have to be made consistent to promote efficiency in operations.

• As staff become familiar and comfortable with these structures, attempts to make changes can be difficult due to resource and routine rigidity within the business.

• To overcome organisational inertia, a business may have to change leadership, restructure the business, or create work environments that promote new directions.

time as a restraining force

• Business change often has to be completed before, after, or within a certain time period.

• The time restrictions may be due to other restraining forces, such as legislation deadlines and financial pressures, or other driving forces, such as competitors and societal attitudes.

• If time has been identified as a restraining force, a business may have to alter time restrictions. This may mean the change is progressively implemented in stages, or another business is engaged to assist with implementing the change.

financial considerations as a restraining force

• Most business changes will incur a cost for it to be introduced or implemented.

• These costs may be associated with equipment, redundancy packages, training, or reorganisation of the business.

• A business must ensure that it has enough funds to carry out the proposed change.

• If the business cannot finance the change, it will need to explore different ways of obtaining the required funds.

• In some cases, it may even have to alter the proposed change to suit its financial position.

porters generic strategies overview

• After reviewing KPIs and business objectives, a business may identify the need for change to improve performance.

•  Porter proposed that businesses can gain a competitive advantage by adopting either lower cost or differentiation as generic strategies

• The appropriate strategy depends on the specific situation and context of the business.

porter’s lower cost strategy - definition

involves a business offering customers similar or lower-priced products compared to the industry average, while remaining profitable by achieving the lowest cost of operations among competitors.

porter's lower cost strategy - extra info

• The lower cost strategy is viable in industries where there are a large number of cost-conscious customers who have little brand loyalty and will choose to purchase from the cheapest supplier.

• Porter argues that only one business should be aiming to use the lower-cost strategy in any industry.

• If more than one business is competing to achieve the lowest costs of operations, rivalry can become so intense that it can decrease the entire industry’s profitability.

• When a business can achieve the lowest costs of operations, it gains a competitive advantage using one of three pricing approaches.

the three pricing approaches and their competitive advantages

Charge similar prices to competitors - Experiences higher profit margins than competitors because the business has the lowest cost of operations.

Charge slightly lower prices than competitors - Maintains a higher profit margin than competitors by having the selling price decrease by a smaller amount than the business’s cost-saving per unit.

Charge much lower prices than competitors - Thin profit margins are outweighed by a high volume of customer sales gained from selling products at significantly lower prices.

methods of reducing operating costs

→ Producing basic, no-frills products.

→ Reducing expenditure on marketing and advertising.

→ Lowering the costs of labour and operations through overseas manufacturing.

→ Producing a high volume of output through automated production lines.

→ Reducing operating costs through economies of scale.

→ Lowering long-term energy costs by using renewable energies such as solar power.

methods of reducing the cost of supplies

→ Obtaining discounts from suppliers by purchasing supplies in bulk.

→ Securing cheaper supplies from global sourcing of inputs.

→ Maintaining low inventory supplies by using Just In Time materials management strategies.

→ Lowering long-term costs by sourcing high-quality supplies.

advantages of porter's lower cost strategy

- attractive to cost-conscious customers (leads to greater profits)

- creates barriers to entry for new competitors as it is often challenging for them to match lower prices, whilst simultaneously reducing the costs of operations and still remaining profitable.

- reduces the expense of operations (can increase profit margins)

disadvantages of porter's lower cost strategy

- customers are not loyal to particular brands. if another business were to offer a cheaper alternative, these customers would likely switch to the new business immediately.

- low prices may result in customers' perceptions that the good or service is of lower quality.

- thin profit margins and reliance on low operating costs can leave a business vulnerable to unexpected increases in expenses, such as suppliers raising their prices.

porter's differentiation strategy - definition

involves offering customers unique services or product features that are of perceived value to customers, which can then be sold at a higher price than competitors.

porter's differentiation strategy - extra info

•  A differentiation strategy is suitable for markets where customers are not price-sensitive and specific customer needs are currently either unmet or underserved.

• It is also suitable within markets that are highly competitive, as a business needs to stand out.

• However, the business should also have unique resources or capabilities that are difficult for competitors to copy.

ways a business can create a point of differentiation

→ introducing new technology, such as electric cars or wireless charging for smartphones.

→ innovating its original good or service, such as adding new flavours.

→ improving durability, meaning the product lasts longer because of higher quality materials or design.

→ advertising a brand image that portrays a status or image aligned with the customers' personal values.

→ niche marketing by meeting the customer needs of a specific market segment, such as fashion for plus-size men.

advantages of porter's differentiation strategy

- customers are often loyal to the business because of unique product features or services not offered by competitors.

- quicker sales from loyal customers when new products or services from the business are introduced.

- can charge premium prices for products as customers cannot purchase the product elsewhere.

disadvantages of porter's differentiation strategy

- it can be difficult to prevent competitors from replicating points of differentiation.

- higher investments of time and money may be required, such as on research to develop innovative products or improve the service levels of employees.

- higher selling prices can deter cost-conscious consumers.

similarities between the lower cost and differentiation strategies

- both increase a business’s profitability by providing a competitive advantage.

- both strategies require the business to be efficient and strategic in operations, whether by cutting costs (lower cost) or by innovating and adding value to its products (differentiation).

- both strategies seek to increase market share by attracting more customers—lower cost attracts price-sensitive buyers, while differentiation appeals to customers seeking unique features or quality.

differences between the lower cost and differentiation strategies

- lower cost sells at similar or lower prices than competitors, whereas, differentiation - sells at premium prices.

- lower cost - targets cost-conscious customers, while, differentiation - targets customers that are not price-sensitive.

- lower cost - internal focus on operating processes, however, differentiation - external focus on meeting customer needs.

other

netflix

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porters

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