Cima E2 Exam Question No 47

Question No 47:

Porter's Generic Strategies - Focus

Porter also noted that both cost leadership and differentiation strategies could be followed with narrow or wide market focus. Broad focus - the organisation sells a product range which will appeal to a wide group of customers. Narrow focus - the organisation focuses effort and resources on a narrow, defined segment of a market. This strategy is often used by smaller firms who can not afford to target the market as a whole

Cima E2 Exam Question No 46

Question No 46:

Porter's Generic Strategies - Differentiation

A differentiation strategy calls for the development of a product or service that offers unique attributes that are valued by customers and that customers perceive to be better than or different from the products of the competition.
 
The value added by the uniqueness of the product may allow the firm to charge a premium price for it.
 
The firm hopes that the higher price will more than cover the extra costs incurred in offering the unique product.  Ways in which differentiation can be achieved include:

• Better quality product
• Better customer service
• Better brand image
• Different features from the competition
• Better after-sales service. 

Cima E2 Exam Question No 45

Question No 45:

Porter's Generic Strategies - Cost Leadership   

Cost Leadership This means being the lowest cost producer in the market. For similar products selling at the market price the cost leader will generate higher profits. They can alternatively sell at lower prices and generate market share. In times of falling prices, the cost leader is able to sustain profitability for longer and survive where other companies may fail. Cost advantages can be achieved by minimising costs throughout the value chain. For example through:

• Making a significant investment in efficient production machinery. 
• Designing products for efficient manufacturing 
• Using efficient distribution channels, minimising sales and distribution costs. 
• Sourcing low cost supplies. •Generating economies of scale through mass production.

Cima E2 Exam Question No 44

Question No 44:

Porter's Generic Strategies - Competitive Advantage?

Competitive Advantage is where one business entity has an advantage over its rivals when competing with them in the marketplace. In order to be successful each business must have a source of competitive advantage or in the long term its competitors will attract more customers and ultimately the firm will go out of business. Michael Porter identified two basic types of competitive advantage cost leadership and differentiation.