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IAI Actuarial Core Principles · Business Management · Strategy, competitive advantage, strategic decision process and PEST analysis

Narmada Bank has built its reputation on fast loan approvals and a strong digital app, and charges slightly higher fees. Its management now proposes to cut fees below every competitor and also to launch premium concierge services, without changing its cost structure. Which risk of this plan is most directly highlighted by Porter's generic strategies model?

The main risk is being stuck in the middle. Cutting fees below rivals while adding costly premium services, without a lower cost structure, mixes cost leadership and differentiation, so the bank may achieve neither advantage and see its margins squeezed.

  1. ABecoming stuck in the middle, with neither a cost nor a differentiation advantageCorrect
  2. BLosing the benefit of economies of scale in distribution
  3. CFacing a rise in the bargaining power of suppliers
  4. DFalling foul of the Actuaries Act 2006
  5. Moving from a focus into a broad market strategy

Explanation

Cutting prices while adding costly premium services without lowering costs blends two strategies. Porter warned that such a firm risks being stuck in the middle, with margins squeezed and no clear advantage. The other options do not follow from the plan described.

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