ACCA Applied Knowledge · Business and Technology · Competitive factors
A manufacturer claims to be a cost leader but also spends heavily on premium branding and a wide product range, and its prices are mid-market with average costs. According to Porter, what is the main risk it faces?
The firm risks being stuck in the middle. Porter argued that a company pursuing neither low cost nor distinctiveness clearly, with average costs and mid-market prices, has no sustainable advantage and tends to earn below-average returns against focused or leading rivals.
- ABeing stuck in the middle with no clear competitive advantageCorrect
- BBeing unable to benefit from economies of scale
- CEntering a market that is too narrow to be profitable
Explanation
Porter warned that firms pursuing no generic strategy clearly, or trying to blend cost leadership with differentiation, risk being stuck in the middle. They have neither the lowest costs nor distinctive value, so earn below-average returns. The other options do not follow from the facts given.
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