Business Management U4 AOS 1 - Business Change

business change

the alteration of behaviours, policies and practises of a business

businesses are constantly evolving and adapting to improve their performance in certain areas. no matter the situation, strong leadership and management skills are required for the successful execution of business change.

it's also crucial for a business to have the support of employees and other internal stakeholders to assist in the 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

can be positive or negative. (eg: a business may introduce an APL in its operations system which improves efficiency and effectiveness but results in 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

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

- this may involve a business fulfilling a gap in the market, recognising a change in the market trends which poses a new business opportunity, or investing in new tech to avoid areas of the business becoming outdated.

- when a business adopts a proactive approach to change, there is likely to be fewer pressures acting on the business. this is because it has chosen to undertake this transformation, allowing the business to implement the change in a calmer, and more controlled manner.

reactive approach to business change

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

- businesses will usually try and avoid reactive change, but when a competitor releases a new product that is taking a large portion of market share or a controversial problem is headlined in the media, businesses must respond in this way to remain competitive and viable.

- unfortunately, this means several pressures are acting on the business and the change is usually undertaken in a manner that is more urgent and relatively unplanned. (eg: a business incurs a data breach that is well-covered in the media, requiring the business to swiftly take appropriate action and respond to the situation to restore its reputation)

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.

key performance indicators (KPI's)

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

- continuous usage of KPI's can allow for ongoing evaluation of a business' performance across a range of areas, including its financial performance, quality of interactions with customers, and environmental impacts.

- KPI's can be used to identify specific areas within the business where change is necessary and can be used continuously to determine the success of the implemented change

- for a business to use KPI's to its advantage, the KPI 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

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

- percentage of market share can highlight the proportion of customers that a business and its competitors are able to engage with, and therefore shows a business' impact and success in the market.

- this KPI, therefore, shows how well a business is performing in its industry. a high % of market share indicates a large share of total industry sales, whereas a low % 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

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

- a manager could analyse a business' net profit figures to assess whether expenses are too high or revenue is too low

- all businesses have the objective to make a profit, therefore net profit figures can be used as a means to evaluate a business' success in achieving its objectives and its financial performance.

- high net profit figures are beneficial for a business' operations, as financial resources can be used for investment into development, growth and meeting shareholder expectations. in contrast, low net profit figures can indicate a business' difficulty to sustain its current level of operations.

net profit figures = total revenue - total expenses

rate of productivity growth

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

- a business relies on the level of productivity from its operations system in order to provide goods and services to its 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.

- high rates of productivity growth indicate that a business has become more efficient over time, as it is able to better utilise its resources in the production process. A positive rate of productivity growth occurs when the business' productivity growth occurs when the business' productivity increases from one year to the next

- in comparison, a negative rate of productivity occurs when productivity decreases, and more inputs are needed to produce the same number of outputs.

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

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

- a business' financial performance can be measured using number of sales as a KPI as it indicates how well goods and services are received by customers.

- a high number of sales indicates a high level of customer satisfaction, however a low number of sales may suggest that customer are dissatisfied with a business' 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

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

- 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)

rates of staff absenteeism

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

- 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.

- A high rate of staff absenteeism may indicate that employees are unmotivated and dissatisfied with their working conditions. and/or have poor relations with management. From the business’s perspective, a high rate of staff absenteeism can be disruptive and expensive, as absent employees may need to be replaced with hired casuals. Furthermore, the workflow may stop completely, causing delays in production and reducing profits.

- Alternatively, 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

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

- a human resource manager can analyse the level of staff turnover to examine staff morale, employee satisfaction, and the strength of interpersonal relationships within the business.

- moderate staff turnover is healthy for business innovation and growth

- a high level of staff turnover indicates that employees are likely dissatisfied with management styles, pay, or working conditions. the loss of experienced and qualified employees can have a direct impact on productivity as time and money must be spent on recruiting and training new employees. high levels of staff turnover reflect poorly on a business’s reputation, limits the pool of candidates that apply for available positions, which can reduce the business’s future opportunities for development and growth

- in contrast, a low level of staff turnover is appealing to prospective employees as it indicates current staff are satisfied with their pay and working conditions. this may lead to the business becoming an employer of choice, encouraging candidates of the highest quality to apply for available positions.

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

number of workplace accidents

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

- a high number of workplace accidents reflects an unsafe working environment. this is a concern for human resource managers, as it's their responsibility to ensure the safety and wellbeing of employees.

- high incidents of workplace accidents can negatively affect staff morale, decrease motivation, increase rates of staff absenteeism, and increase the level of staff turnover, as employees feel that their safety is not the business’s priority. a high number of workplace accidents can also halt production, decreasing efficiency and effectiveness whilst also damaging the business’s public reputation.

- a low number of workplace accidents indicates a comfortable, safe, and efficient working environment where employees are properly trained to maintain overall health and wellbeing.

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

level of wastage

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

- high levels of wastage at any stage of the production process is a concern to a business, particularly an operations manager, as it often increases the raw materials, cost, and time required to produce a good or service. this may increase the expenses of the business and consequently reduce profits.

- additionally, high levels of wastage can reflect poorly on a business in terms of environmental sustainability and corporate social responsibility (CSR), which may negatively affect its reputation and overall performance.

- 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

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

- 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 can indicate that a business has a strong relationship with its customers, has effectively marketed a new product, or has a high level of interest in current or future products. businesses that have a high number of website hits likely model their online presence so that customers can navigate it comfortably and efficiently, which may provide greater opportunities for sales.

- a low number of website hits may suggest a business has a poorly developed online platform that does not entice customers to engage with the business or in online purchasing. I

- website hits provide valuable and analytical data to identify popular products or business areas. in a technology-driven world, a work website can harm a business’s development and performance

force field analysis

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

the model identifies and examines factors that promote or hinder the change from being successful. factors can be classified as driving or restraining forces.

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 weighting 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 change.

weighting

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

- the business first identifies the driving forces that promote and the restraining forces that resist the proposed change.

- the principle of weighting enables a business to assign a "weight" to determine the level of impact each force can potentially have on a change. typically, weighting involves assigning a numerical score between 1 and 5 (low to high)

- the weight attributed to each force can depend on the degree to which the force is connected to, or affected by, the change. (eg: 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

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

- at this stage, it can be determined whether the overall total score of the driving forces will overpower the total score of the restraining forces.

- a business change can only be implemented successfully when driving forces outweigh the restraining forces. this means the overall score of the driving forces must be stronger than the overall score of the restraining forces if a business wishes to implement changes successfully.

- when restraining forces outweigh driving force, action will need to be taken to ensure the success of the proposed change. ranking helps determine which driving forces could be most easily strengthened further, and which restraining forces are most important to be removed or minimised.

implementing a change

- after ranking the forces, a business should implement a response dependent on whether driving forces or restraining forces are stronger. successful change is only likely to occur when driving forces are stronger than restraining forces.

- in a force field analysis, the principle of implementing a response refers to the action that can be taken to strengthen the driving forces, reduce the restraining forces or the actual execution of the change.

- during the actual execution of the change, an action plan that details what needs to be done, who is responsible, the resources required, and deadlines for task completion can be created to support the implementation of the change. an action plan can also outline how the business will work to continuously strengthen driving forces and weaken the restraining forces.

evaluating the response

- final stage in a FFA. it involves determining whether or not the change has been successfully implemented. the principle of "evaluating" involves comparing the actual change to the anticipated change and determining whether 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).

- a business can use KPI's to measure the success of change in achieving business objectives. if the KPI targets have been met and business objectives had been achieved, the the evaluation of the change is successful and positive. however, if the evaluation of the change is negative, 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

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

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

- owners are the highest form of management within a business. owners often make large scale 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.

- most business owners have developed their business over time and have a personal interest 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.

- moreover, owners also have an interest in the financial performance of the business, given they receive income from its operations. due to these interests they hold in their business, 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 play an important role within a business as they ensure business performance is optimised and objectives are being achieved.

- they are responsible for overseeing the implementation of policies and procedures in daily operations as well as the long-term goals of the business. managers can act as a driving force for change when the proposed change will enhance the business's ability to meet objectives.

- when a manager is in support of a change, their management style, attitude, and leadership can encourage successful change implementation. this is because they set an example for other employees to follow.

- as an employee of the business, managers are concerned with their job security and financial incentives, which leads them to seek opportunities for business change. this means that both their approach to their management role and their personal interest 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. similar to business owners and managers, employees also have a personal interest in the performance of the business, given it provides them with work and an income.

- however, where owners and managers are more concerned with the broad scale of the business, individual employees may focus their attention on their working conditions, training, wage and benefits that the business can offer them.

- in such instances, employees may act as a driving force for proposed changes that would improve their work environment. employees may also strive to improve processes within the business where they discover opportunities for improved productivity.

pursuit of profits as a driving force

- one of the main objectives of all businesses is to make profit. businesses are encouraged to implement changes that improve their financial performance. after undertaking change, a business may be better able to fulfil other obligations, such as providing returns to its shareholders.

- businesses must be adaptable to the rapidly changing market they operate in. if a business' revenue drops due to a change in the market, the business must be willing to explore new opportunities to change in order 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 the costs of their operations. 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 that reduce wastage or improve productivity can reduce a business' costs, and this often leads to an increase in the business' net profit figures. a business may be able to source materials from a cheaper supplier 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.

- one of the core aspects of operating a business is competing against rival businesses. if a business fails to compete within its respective market, it will struggle to survive.

- it is important that all business respond appropriately to changes made by rival firms. 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

laws and legal regulations that a business has to follow.

- 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

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

- the trend of increasing globalisation means that more businesses are operating on a global scale due to the removal of trade barriers. T

- the existence of free trade means that businesses are now operating in a single global market and are constantly facing pressure from international competition.

- as globalisation allows for goods to be produced in different parts of the world, this allows businesses to take advantage of economies of scale by finding more efficient and cheaper ways to produce their products. This often results in prices being driven down in the market as businesses can afford to lower their prices.

- furthermore, as globalisation results in the movement of businesses and people across the globe, this has increased the circulation of cultures and resulted in a rise in cultural homogenisation. this has resulted in customers accepting and demanding goods and services originating from different cultures.

- therefore, globalisation is a driving force for change as it provides opportunities for businesses to expand to new countries. if a business fails to recognise that it’s competing in a global market, it will likely not survive.

technology as a driving force

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

- 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.

- some forms of technology that can be implemented to improve a business’s operations system include APLs, robotics, CAD, CAM, AI, and online services.

- businesses should also ensure they take into consideration relevant technological advancements when producing goods and services. facial recognition systems used in mobile phones, 5G technology, and the increased use of electric cars are all examples of technological advancements that 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

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

- 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

- as the attitudes and beliefs of society are constantly changing, businesses need to ensure that their operations align with societal attitudes and behaviours.

- 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 in order to ensure customers feel safe and to prevent the spread of the virus.

- the increasing trend of individuals becoming health conscious = new healthy product ranges. Increased societal concerns about environmental sustainability = eco-friendly. - - as societal attitudes are constantly evolving, they will always act as a driving force for business change.

restraining forces

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

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 employees as a restraining force, managers usually have to persuade or create incentives for the proposed changes to be adopted, often needing to demonstrate key leadership and management skills.

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 a legislative restraining force, a business may have to apply for licences, obtain permits, or even change contracts and agreements, so they comply with the law. however, in some cases, legislative barriers cannot be overcome.

legislation affecting different stakeholders

Competitors:

→ Competition and Consumer Act

→ Intellectual property laws

Customers:

→ Pricing displays and regulations

→ Product labelling

→ Warranties and refunds

→ Privacy laws

Employees:

→ Pay and conditions

→ Worker’s Compensation Insurance

→ Occupational Health and Safety

→ Anti-bullying and harassment

→ Unfair dismissal laws

Environment:

→ 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 find ways to alter the time restriction. 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 introduction 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's Generic Strategies can guide the strategic direction for business change. in 1985, Michael Porter proposed two generic strategies for gaining competitive advantage: lower cost or differentiation.

Porter stressed that a business should only adopt one of these strategies to avoid being "stuck in the middle."

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

porter's lower cost strategy

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

- 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

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.

- 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, differentiation - sells at premium prices.

- lower cost - targets cost-conscious customers,

differentiation - targets customers that are not price-sensitive.

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

other

netflix

- know about business change and force field analysis

porters

- know how to evaluate them