Porter's Generic Strategies (AQA A Level Business): Revision Note

Influences on strategic positioning

• Strategic positioning is how a business sets itself apart from competitors in the market by choosing the unique mix of price, quality, service and features it offers

Influences on the choice of strategic position

Introduction to Porter's generic strategies

• Porter’s generic matrix identifies a range of strategies a business can utilise to increase their success in the competitive landscape

• The matrix considers two factors 

  • Its main source of competitive advantage

    • Cost

    • Differentiation

  • The scope of the market in which it operates

    • Mass market

    • Niche market

• Porter provides a clear framework for businesses to determine the most appropriate strategy to succeed

• It emphasises the importance of developing distinctive capabilities and avoiding being 'stuck in the middle'

Porter's generic matrix

• The model encourages businesses to make strategic choices that are difficult for competitors to copy

• Pursuing one strategy forces the business to make explicit choices about its direction and concentrate on it

• However, the model does not offer guidance to businesses on specific tactics or implementation

• It also overlooks external factors

  • Technological change, economic conditions and changes in laws could  impact competitive position

Stuck in the middle

• Porter argued that failing to adopt one of the strategies risks a business being 'stuck in the middle'

  • This means it is unable to compete successfully with rivals in the market because each strategy is different

  • A business should select its strategy and concentrate its resources on pursuing it rather than simply responding to its competitors' actions

• Pursuing a mixture of strategies is also not feasible in the long term

  • For example, cost leadership and differentiation are unlikely to be financially compatible

    • Low prices combined with high quality can negatively affect consumer perceptions of the product

Low cost strategies

• Most suitable for businesses that have a significant cost advantage over rivals 

  • It means being the most cost-competitive business in a large market

• Cost leadership with parity

  • Where a business has lower costs than rivals but charges the same price

  • Examples include hotel chains such as Premier Inn and Ibis Styles

• Cost leadership with proximity

  • Where a business has lower costs and charges a lower price than rivals

  • Examples include budget airlines such as Southwest and Ryanair

Evaluating low cost strategies

Differentiation strategies

• Businesses that cannot be the most competitive on cost should make its products distinct from those of rivals

  • For example, a business may stand out on quality, customer service, innovation or brand identity

• Successful differentiation allows a business to charge a premium price and achieve a high profit margin

• Examples of businesses that adopt a mass market differentiation strategy include Coca Cola, Samsung and Volvo

  • Coca Cola's trusted and well-known branding includes its logo, brand colours and characters such as the Coca Cola truck

  • Samsung's cutting-edge mobile phones have the most advanced package of technical features in the mass market

  • Volvo's focus on safety and build quality allows it to charge premium prices in the mass market

Ways to achieve differentiation

Marketing and branding

• A business creates a distinct image and set of values in customers' minds so its product feels different even if the core features are similar to rivals'

  • E.g. Apple's marketing consistently positions its products as premium and well-designed, allowing it to charge higher prices than competitors with similar technical specifications

Packaging

• Distinctive or premium packaging makes a product stand out on the shelf and can affect customers' perception of its quality before they even try it

  • E.g. Innocent Drinks uses quirky, conversational packaging design to make its smoothies feel more fun and distinctive than supermarket own-brand alternatives

Functions and features

• Adding extra capabilities or performance beyond what competitors offer gives customers a practical reason to choose one product over another

  • E.g. Dyson's bladeless fans use patented technology that provides a smoother, safer airflow than traditional fans with spinning blades, justifying their higher price

Customisation

• Allowing customers to personalise a product to their own preferences makes it feel unique to them, reducing the appeal of switching to a standard rival product

  • E.g. Nike By You lets customers design their own trainers, choosing colours and materials to create a personalised pair

Customer service

• Providing a higher standard of support, advice or after-sales care creates a positive experience that competitors offering a similar core product may not match

  • E.g. John Lewis is well known for its generous returns policy and knowledgeable in-store staff, differentiating it from cheaper retailers selling similar products

Evaluating differentiation strategies

Focus strategies

• Businesses that operate in niche markets should adopt one of two focus strategies that closely meet the needs of its specific group of customers

Cost focus strategy 

• A cost focus involves being the lowest cost competitor within the market niche

  • E.g. Carnival Cruises sells cruises to locations including the Caribbean and Europe and is well-known for its eye-catching low fares that can be offered because its fleet includes smaller vessels that operate at full capacity

Differentiation focus strategy

• A differentiation focus involves offering specialised products within the niche market

  • E.g. Hotel Chocolat sells a range of premium celebration confectionary in its chain of beautifully-designed retail outlets

Evaluating focus strategies

Changing strategic positioning

• Repositioning means deliberately changing a business's chosen combination of price, quality, service and features, altering how it is perceived relative to competitors

Why reposition?

• Changing customer needs and preferences

  • For example, growing demand for sustainable or ethical products can push a business to reposition around these values

• New competitor entry

  • A new rival entering with a similar or better offer can force an existing business to find a different position to remain relevant

• Changes in the economic environment

  • A recession may push a business to reposition towards value

  • A period of growth may create room to move upmarket

• Poor performance in the current position

  • Falling sales or profit in a business's existing position may signal that it needs to change how it competes

Example

Skoda successfully repositioned from a budget brand once associated with poor reliability, to a genuinely competitive, quality-focused mainstream car manufacturer, allowing it to charge higher prices than before

This change followed significant investment after being taken over by the Volkswagen Group

Advantages of changing strategic positioning

Access to new customer segments

• Repositioning can generate revenue from a group of customers the business previously did not appeal to, supporting further growth

Example

Aldi introduced its 'Specially Selected' product line, helping it attract more affluent shoppers who would not previously have considered a discount supermarket

Staying relevant

• Adapting to changing customer needs or a changing competitive environment helps prevent a business from being left behind as its market changes

Escaping a weak or declining position

• A business stuck in the middle, or competing in a shrinking segment of the market, can use repositioning to return to a more profitable position

Higher prices and margins

• A business that successfully repositions upmarket can often charge a premium price, improving profitability

Disadvantages of changing strategic positioning

Risk of alienating existing customers

• Moving upmarket, for example, may make prices too high for a business's core customers, causing them to switch to a rival that better matches their needs

Brand image can be slow to shift

• Customers may not believe a repositioning is genuine, undermining the change even if the product itself has improved

Example

Burberry's move towards a fully exclusive, luxury position alienated some of its existing customer base

After a series of profit warnings, its 2023 'Burberry Forward' strategy had to partially move the brand back towards a broader position

Costly and time-consuming

• Repositioning often requires investment in new store design, product ranges, marketing and staff training before customers even notice a change

Risk of brand confusion

• Inconsistent or poorly communicated changes can weaken customer trust rather than strengthen the business's position

Competitor response

• Rivals may target the customers a business leaves behind when repositioning, or match the new position themselves, reducing the intended competitive advantage