OCR A Level Business: Models of strategic choice (H431) – Revision Notes

These notes condense section 1.10 “Models of strategic choice” of the OCR A Level Business (H431) specification, Version 2.1 (January 2026), for first assessment in 2017 and final assessment in summer 2027. For full explanations and worked examples, read the study guide first. Then test yourself on the practice questions.

Other links: course hub, printable checklist, objectives and strategic decisions guide, strategy revision notes, strategy practice and the free diagnostics.

The seven points to be able to do

Point	One-line summary
Explain Five Forces (nature, purpose)	Industry framework of five competitive pressures; judges how attractive and profitable an industry is
Evaluate position or proposed position with Five Forces	Rank the forces using case evidence, judge the industry, state the response
Evaluate usefulness of Five Forces	Structured, but a snapshot, industry-level and judgement-based
Explain generic strategies (nature, purpose)	Broad routes to competitive advantage: cost leadership, differentiation, focus
Evaluate position or proposed position with generic strategies	Match evidence to a strategy, test fit and risk
Evaluate usefulness of generic strategies	Clear and simple, but real firms blend strategies
Explain competitive advantage	A feature that lets a business outperform rivals

Competitive advantage

• Definition (standard sense): something a business does better than rivals that earns it more customers, higher margins or both.
• Sources: lower costs, or something customers value that rivals lack.
• Lasts when: customers notice it and rivals cannot copy it quickly (a brand, patent, location, skills).
• Does not last when: it is a price cut that rivals can match.

Five Forces at a glance

Force	Stronger when	Typical response
Rivalry	Many similar rivals, slow growth, little differentiation	Differentiate, avoid price wars, find a niche
New entrants	Low start-up cost, no loyalty, easy distribution	Build barriers: scale, brand, patents, loyalty schemes
Substitutes	Close alternatives, low switching cost	Improve value, stress benefits, add features
Buyer power	Few large buyers, easy switching, standard product	Widen the customer base, lock in with contracts, differentiate
Supplier power	Few suppliers, essential input, high switching cost	Use several suppliers, build relationships, hold stock, integrate

Key idea: a strong force reduces profit by pushing prices down or costs up.

Method: evaluate a position with Five Forces

1. Pick out case evidence for each force. Say “not enough information” where the case is silent.
2. Rank the forces. Which one limits profit most?
3. Judge the industry: attractive, moderate or unattractive.
4. Recommend a response, and say what could change it (for example, a new technology that creates substitutes).

For a proposed position, compare the forces in the new market with those in the current one.

Usefulness of Five Forces

For	Against
Structured, covers the main pressures	Snapshot; markets change
Explains why industries differ in profit	Industry-level, not firm-level
Guides entry and exit decisions	Strength of each force is a judgement
Shows where to build barriers	Does not say what to do

Verdict pattern: most useful as a first filter and when combined with SWOT or forecasts.

Generic strategies at a glance

	Whole market	Narrow segment
Lower cost	Cost leadership	Cost focus
Differentiation	Differentiation	Differentiation focus

(Standard form of the model.)

Strategy	What it needs	Main risk
Cost leadership	Scale, efficient processes, tight overhead control	Price war; a rival with lower cost; falling quality
Differentiation	Features customers value; spending on quality, design or brand	Imitation; customers stop valuing the difference
Focus	Deep knowledge of one segment	Segment shrinks; a larger rival enters it

Method: evaluate a position with the generic strategies

1. Match evidence (relative price, unit costs, target market, advertising claims) to a strategy.
2. Check the business has the capability that strategy needs.
3. Look for conflict between strategies.
4. Weigh the risks.
5. Link to the market (use Five Forces) and recommend.

Usefulness of the generic strategies

For	Against
Simple, forces a clear choice	Real firms often combine strategies
Links to competitive advantage	Four boxes oversimplify
Helps align functions	Does not say how to build capability
Good for comparing rivals	Does not show whether the market is profitable

Worked reminder: price versus margin

A cost leader and a differentiator can earn very different margins and still make similar total profit.

gross profit per unit = selling price - unit cost
gross margin (%)      = gross profit per unit / selling price x 100
total gross profit    = gross profit per unit x units sold

Example: a firm sells 5,000 units at £40 with unit cost £34, giving £6 per unit, a 15% margin and £30,000 in total. A rival sells 1,000 units at £90 with unit cost £60, giving £30 per unit, a 33.3% margin and £30,000 in total. The same total comes from very different strategies.

Linking the models and writing the answer

• Five Forces asks how hard it is to earn profit in the industry. Generic strategies ask how this business will win customers. Use one to test the other.
• Example link: strong buyer power makes a pure price strategy risky for a small supplier, so differentiating through service or reliability may be safer.
• For “evaluate” questions, use this order: point from the case, effect on the business or its stakeholders, counter-point, judgement that depends on a condition.
• For “explain” questions, define the model, then say what it is used for.
• Link back to the wider strategy notes when a question mixes Ansoff, SWOT or decision trees with these models.

Evaluation prompts to keep to hand

• Which force or strategy matters most here, and why?
• Is the evidence current, or could the market change quickly?
• Does the business have the capability to carry out the strategy?
• Which stakeholders gain or lose: owners, employees, customers, suppliers?
• What would change your conclusion?

Must-know distinctions

• Five Forces describes an industry; generic strategies describe a business’s choice.
• Low price is not the same as cost leadership. Cost leadership is about low cost.
• Focus is about scope (a narrow segment), not about size of firm.
• A strong force is a problem to manage, not a reason to give up.

Quick self-test

1. Name the five forces in Porter’s model.
2. What is the purpose of Five Forces?
3. State two conditions that make buyer power strong.
4. State two conditions that make the threat of new entrants weak.
5. Name Porter’s generic strategies.
6. What is the difference between differentiation and differentiation focus?
7. Give one risk of a cost leadership strategy.
8. A firm sells 8,000 units at £25 with unit cost £21. Calculate its total gross profit and gross margin.
9. Give one reason why Five Forces may be of limited use to a business.
10. Explain what is meant by competitive advantage.

Answers

1. Rivalry among existing competitors, threat of new entrants, threat of substitutes, bargaining power of buyers, bargaining power of suppliers.
2. To assess how attractive and profitable an industry is, and so guide decisions about entry and strategy.
3. Any two: few large buyers; easy switching; standard product; buyers can make the product themselves.
4. Any two: high start-up cost; economies of scale for existing firms; strong brand loyalty; difficult access to distribution; patents or other legal barriers.
5. Cost leadership, differentiation and focus (cost focus or differentiation focus).
6. Differentiation aims at the whole market; differentiation focus targets one narrow segment.
7. Any one: a price war; a rival with lower costs; quality falling as costs are cut; loss of sales if a single cost cut is copied.
8. Gross profit per unit is £4, so total gross profit is £32,000. Gross margin is 4/25 = 16%.
9. Any one: it is a snapshot while markets change; it is about the industry, not the business; judging each force is subjective; it does not recommend action.
10. A feature (such as lower costs or a valued difference) that lets a business do better than rivals, giving more customers, higher margins or both.

Where marks are usually lost

• Writing about one business’s strengths when the question asks about the industry.
• Naming the forces without linking each to evidence in the case.
• Treating all five forces equally instead of ranking them.
• Saying a force is “high” without explaining the effect on profit.
• Mistaking low prices for cost leadership.
• Describing a strategy without checking whether the business has the capability to deliver it.
• Evaluating the usefulness of a model with generic points that would fit any model.
• Giving a one-sided answer to “evaluate” or ending without a judgement.
• Forgetting to say what the business should do, or what could change the conclusion.
• Using the wrong term, such as “Boston matrix”, for a Porter model.

Frequently asked questions

What are Porter’s five forces? The five forces are rivalry among existing competitors, the threat of new entrants, the threat of substitutes, the bargaining power of buyers and the bargaining power of suppliers. A strong force reduces profit by pushing prices down or costs up.

What are Porter’s generic strategies? They are cost leadership and differentiation across the whole market, and cost focus and differentiation focus within a narrow segment. Each is a broad route to competitive advantage, and each needs different capabilities.

What is the difference between Five Forces and the generic strategies? Five Forces describes an industry and asks how hard it is to earn profit there. The generic strategies describe a business’s own choice of how it will win customers, so the two are often used together in OCR A Level Business (H431) answers.

Can a cost leader make as much profit as a differentiator? Yes. A cost leader usually earns a lower margin per unit but can make a similar or higher total profit by selling a much larger volume, so compare total gross profit as well as margin.

Official syllabus

OCR, A Level Business (H431), Version 2.1 (January 2026), for first assessment in 2017 with final assessment in summer 2027: area of study “Business objectives and strategic decisions”, section “Models of strategic choice”.