ACCA Applied Knowledge · Business and Technology · Competitive factors
A mid-sized airline offers low fares on some routes but also promotes premium service and a distinctive brand on the same routes, with no clear emphasis on either. According to Porter, what is the main danger of this position?
The main danger is being stuck in the middle. By pursuing low fares and premium differentiation without clear commitment, the airline has neither the lowest costs nor distinctive uniqueness, so according to Porter it is likely to earn below-average returns compared with firms with a clear generic strategy.
- ABeing stuck in the middle, earning below-average returnsCorrect
- BOverspecialising in a narrow segment
- CBeing unable to use the value chain
- DFacing no competitive rivalry
Explanation
Porter argued that firms failing to commit to cost leadership, differentiation or focus become stuck in the middle. They lack the cost base of the cost leader and the uniqueness of the differentiator, so returns tend to be below average. The scenario is not a narrow segment, so overspecialisation is wrong.
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