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IAI Actuarial Core Principles · Business Management · Business and consumer needs, the industry value chain and competitive forces

Himalaya Pensions, a mid-sized Indian pension fund manager, offers a standard product at average prices and has a standard service level. Its strategy team notes it has neither the lowest costs nor a distinctive offering, and its margins are falling. Porter would say the firm is at greatest risk of which position, and what is the usual recommended remedy?

The firm is stuck in the middle. It has neither the lowest costs nor a distinctive offering, so returns suffer. The usual remedy is to commit clearly to either cost leadership or differentiation, possibly within a chosen segment, rather than remaining average on both.

  1. AFocus position; it should broaden to all segments
  2. BStuck in the middle; it should commit clearly to either cost leadership or differentiation, possibly within a chosen segmentCorrect
  3. CCost leader; it should raise prices
  4. DDifferentiator; it should cut quality to cut costs
  5. Monopolist; it should expect regulatory action

Explanation

A firm that pursues neither low cost nor differentiation is described as stuck in the middle and tends to earn below-average returns. The remedy is to commit to one generic strategy, broad or focused. Raising price or cutting quality without a clear position does not solve the lack of advantage.

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