Chap 4.9: Porter's Generic Strategies

Front

Define PORTER'S GENERIC STRATEGIES

Back

Porter’s generic strategies outline how a business can pursue a competitive advantage in the marketplace.

Porter's generic strategies include:
- Lower cost
- Differentiation

Businesses can implement one of the generic strategies to gain a competitive advantage.

Front

Define LOWER COST STRATEGY

Back

A business gains a competitive advantage by becoming the low-cost producer in its industry.

Front

What does Porter's LOWER COST strategy involve ?

Back

Offering customers similar or lower-priced products compared to the industry average, WHILE remaining profitable by achieving the lowest cost of operations among competitors.

Front

Cost leadership strategies

Back

Cost Leadership Strategy:

• • Core Concept: This strategy involves businesses striving to become the lowest-cost producer in their industry, enabling them to offer lower prices to customers.
  

• • Benefits: Lower prices can attract cost-conscious customers and increase market share.
  

• • Viability: Most effective in industries with price-sensitive customers and low brand loyalty.
  

• • Implementation:

  • Requires significant scale and market share to leverage economies of scale effectively.

Front

Business can implement the LOWER COST approach by:

Back

• • 1. Reduce the operating cost
    2. Reduce the cost of suppliers

Front

Explain ways that business can REDUCE OPERATING COST if they were to implement LOWER COST approach ?

Back

• • • 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 energycosts by using renewable energies such as solar power.

Front

Explain ways that business can REDUCE THE COST OF SUPPLIES if they were to implement LOWER COST approach ?

Back

• • • 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.

Front

Advantages of a LOWER COST strategy.

Back

• A business may become more profitable as profit per unit can increase.

• Able to prevent competitors from increasing market share if they can’t match costs or prices.

• A business may save money on some costs to allow expansion or development of new product lines

• Savings can be put towards differentiation at a later date

Front

Disadvantages of a LOWER COST strategy.

Back

• Sales may fall as customers may perceive a product as being of poor quality. 

• A business may lose its market share if other businesses copy the low-cost approach. 

• Lowering costs now means there is little room to make changes in the future. 

• Lowering costs may make it difficult to differentiate in the future if the cost advantage disappears.

Front

Definition of no-frills products.

Back

No-frills products are basic products without non-essential features.