1. Porter’s Generic Strategies

2. Defending Competitive Advantage
If a firm’s successful formula is easy to copy, its superior returns will be short-lived
Dyson ‘bagless’ vacuum copied by other manufacturers e.g. Hoover

3. Defending Competitive Advantage
Rivals can learn from the first mover and develop:
Products offered at a better price
Better products
This will drive profitability of the first firm downwards
A winning formula needs to be special in some way and difficult to imitate for superior profits to be sustainable

4. Porter’s Five Forces
Every marketing strategy needs to be defendable against the forces of competition
Companies therefore need to analyse their strategies against PORTER’S FIVE FORCES

5. Porter’s Five Forces The threat of new entrants
The threat from substitute products
The power of buyers (i.e. consumers)
The power of sellers (i.e. suppliers)
The level of competition between firms

6. Successful companies
Successful companies build highly distinctive products and services for which there is no ready substitute.
Ignoring the competition can be fatal – just ask
Marks and Spencer
Tesco
WHSmiths

7. Porter’s Generic Strategies
STRATEGIC ADVANTAGE
Low Producer Cost
High Customer Value
STRATEGIC
TARGET
Mainstream Market
Cost Leadership
Differentiation
Niche Market
Focused cost leadership
Focused differentiation

8. Cost Leadership Aim: To be the lowest cost producer in the industry
Prices close to industry average
Risk 1 – Customers perceive that products are of lower quality which may force you to reduce price (& therefore profit margin)
Risk 2 – Competitors reduce their costs to match firm’s levels

9. Cost Leadership Ways to reduce costs: Introduce new production method
New cheaper source of supply
New technology allowing business to cut costs
New distribution strategy
Productivity improvements

10. Cost Leadership
It is likely that competitors will be able to copy many of the ways set out above
For PERMANENT cost leadership may need:
A patent to protect process enabling lower costs
Economies of scale due to size
Creating barriers to entry that prevent competition from eroding market

11. Cost Leadership

12. Differentiation Definition:
Product differentiation is the degree to which consumers see a particular brand as being different from other brands
If consumers value the difference then the company can benefit in two ways:
1. Increased sales volume
2. greater scope for charging a higher price (more price inelastic)

13. Differentiation (a.k.a. Value Leadership)
Differentiation can be based on a number of characteristics:
Superior performance
Product durability
After-sales service
Design, branding & packaging to improve the attractiveness of the product
Promotional campaigns to boost brand image and sales
Different distribution methods

14. Differentiation & Added Value
Pursuing a policy of differentiation can add value by creating a USP
This may be real:
E.g. different design / components
Or perceived:
Based on image and branding
Key to success is to reduce costs in areas that do not affect the USP, and identify features that add value without significantly increasing costs

15. Differentiation

16. Differentiation
How do the following companies differentiate their products / service?
Avon cosmetics
Amazon
Hotel Chocolate
BMW

17. Focus
Porter identified comparable approaches to firms operating in niche markets
i.e. a firm picks a segment of the market that is poorly served by the main players in the industry and then adopts either a cost leadership or differentiation strategy to target the segment or niche
Porter says that firms which fail to adopt one of these strategies risks failure

18. Focus Differentiation Costs High Success ‘Stuck in the middle’
- failure ?
Success
Low
Low
Costs
High

19. Stuck in the Middle?
“Good food costs less at Sainsburys”

20. Stuck in the Middle?