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					 Porter’s Generic
IB Business & Management
          IB1 Higher Level
   What is a conglomerate?
   What are diseconomies of scale
   What is external growth?
Lesson objectives
   By the end of the lesson students should be
    able to: -
       Understand Porter’s generic strategies
       Apply the strategies to different types of
   Differentiation
   Competitive advantage
   Cost leadership
   Focus
   Generic strategies outline ways that businesses can gain a
    competitive advantage. If a profitable product or idea can be
    copied easily then other firms will take advantage and enter the
    market. Rivals can also improve the product. E.g. iPhone
   The original firms profits will fall, so Porter argued that successful
    businesses must have a competitive advantage to prevent a
    profit decline due to rivals in the market
   There are three general strategies to maintain competitive
     Cost Leadership
     Differentiation
     Focus
Cost leadership
   To become the lowest cost supplier of a
    product within the market. E.g. Air Asia is the
    lowest cost airline in SE Asia
   Firms charge low prices but are highly
    profitable and market leaders.
   How to compete? Penetration or predatory
    pricing strategies.
   When a firm makes its mass market products
    distinct from any competitors.
   This could include packaging or branding the
   E.g. Quality rather than the cost.
   Successful differentiation allows a business to
    charge a premium price
   E.g. Coca Cola, BMW & iPod
   The main drawback could be the expense required
    to successfully develop and promote
   When a firm targets a niche or single segment of a
   For example Gucci, Rolex focus on a highly
    profitable strategy caused by high prices and lack of
   Low cost businesses can also focus on certain
    market segments, e.g. Plastic Fantastic
   The focus strategy is limited to each market size
   Porter suggests that long term use of a
    mixture of these strategies is not possible
   E.g. You cannot maintain high quality by
    using a cost leadership strategy, i.e. you
    cannot expect to highly profitable and have
    an image of outstanding quality by charging
    low prices.
   Therefore managers should concentrate on a
    specific strategy that best serves their
   Identify which of Porters generic strategies
    are used by the following businesses and
    explain. (6 marks)
       Harrods
       KFC
   To what extent does Porters theory apply to
    global conglomerates? (7 marks)