Lesson 3 of 10 · All lessons in this module
- Competitive strategy and positioning
- Strategy over the life cycle and addressable markets
- Generic strategies in practice: capacity, moats and two kinds of focus
- Revenue drivers: bottom-up and top-down
- Pricing power
- Operating costs and operating leverageVideo lesson
- Operating profitability and working capital
- Choosing a profit margin, cost components and price elasticity
- Capital investments and capital structure
- FCFE, net capex and financing across the life cycle
This lesson is part of the 2027 curriculum. You are following the 2026 curriculum, where it is not taught in this form. Switch if you are sitting the exam under the 2027 curriculum.
Lesson 3 of 10 · 13 min
Generic strategies in practice: capacity, moats and two kinds of focus
To turn a generic strategy into forecasts, the analyst looks for the operating evidence each one leaves (capacity utilisation and unit costs for a cost leader, hard-to-copy features for a differentiator, a chosen niche and basis for a focuser) and links stated goals to revenue drivers.
In short
- Cost leadership is most common where products are commoditised; it works through economies of scale and scope (often via acquisitions sharing distribution) and cost control, which for high-fixed-cost firms means high capacity utilisation.
- Airline example: load factor = revenue passenger-km / available seat-km; CASK = operating cost per available seat-km.
- A differentiation moat lasts only if rivals cannot copy it: patents and copyrights protect for long; features, service extras and branding often give a short-lived edge. Subscriptions add engagement data and predictable revenue.
- Focus comes in two forms: differentiation-based (a niche with a unique product at premium prices) and cost-based (the lowest price in a narrow segment). Cost leadership, by contrast, targets the broad market.
- Measurable strategic goals and bottom-up revenue detail (product mix, same-store vs new outlets, renewals vs new subscribers) connect strategy to forecasts.
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