IB Business and Management

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The Five Generic Competitive Strategies

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Presentation transcript:

IB Business and Management 1.6 Porter’s Generic Strategies

Learning Outcome Examine how Porter’s Generic Strategies may provide a framework for building a competitive advantage

Porter’s Generic Strategies Michael Porter suggested that businesses can achieve a competitive advantage over rivals by following one of four strategies outlined in his ‘Generic Strategies’ Model

The 2 dimensions of the Generic strategies Porters says that firms have to make decisions on their strategy in 2 dimensions: The source of the competitive advantage The scope of their target market

Source of the competitive advantage Porter argues that firms will either succeed by either: Being the Lowest Cost Supplier in a particular industry, allowing the business to charge low prices while still being profitable Creating products which are Differentiated from competitors and can therefore charge a premium price in order to be profitable

Scope of the target market Porter also distinguishes between the scope of the business’ target market. Businesses will either have a: Broad competitive scope: aimed at a mass market Narrow competitive scope: concentrate on small segments of the market (Niche)

Video Watch the video ‘Generic Strategies Mini-lecture’

(differentiation) Stuck in the middle

Which strategy have these successful businesses followed……. What are the advantages/limitations of these strategies?

Implications Firms who try and do more than one strategy will be ‘stuck in the middle’ and will be unlikely to succeed For example a firm aiming to produce the best quality product at the lowest prices will be unprofitable….. Can you think of any examples?

Questions…. Which strategy do you think would be the most difficult to succeed with? Which strategies do you think would be hard for a business start-up? Do you agree that firm’s can’t succeed if they are ‘stuck in the middle’? Why?

Question…. Which of the generic strategies is Poundland using? What PEST factors could have aided it’s success?

Homework Pick a business of your choice Which of Porter’s Generic Strategies is it following? Why do you think it has been successful? Can you identify other competitors in the industry that are following the same/different strategies