Block 4 Flashcards
State the 5 generic competitve strategies
- Low cost provider
- Broad differentiation
- Focused differentiation
- Focused low cost
- Best provider
Define low cost provider
Striving to achieve lower overall costs than rivals on products that attract a broad spectrum of buyers
Define broad differentiation
Differentiating the firm’s product offering from rival’s with atributes that appeal to a broad spectrum of buyers
Define focused low cost
Concentrating on a narrow price-sensitive buyer segment and on costs to offer a lower priced product
Focused differentiation
Concentrating on a narrow buyer segment by meeting specific tastes and requirements of niche members
Define best cost provider
Giving customers more value for money by offering upscale product attributes at a lower cost than rivals
What low cost provider strategies have effective low cost approaches?
● Pursue cost savings that are difficult to imitate
● Avoid reducing product quality to unacceptable levels
State the competitive advantages and risk of low-cost provider strategies
●Greater total profits and increased market share gained from underpricing competitors
●Larger profit margins when selling products at prices comparable to and competitive with rivals
●Low pricing does not attract enough new buyers
●Rival’s retaliatory price-cutting sets off a price war
True or False
A low-cost advantage over rivals can translate into better profitability than rivals attain
True
How can a Firm gain a low-cost advantage?
● Perform value-chain activities more cost-effectively than rivals
●Revamp the firm’s overall value chain to eliminate or bypass cost-producing activities
In relation to low-cost advantage. Complete the sentence.
Cumulative costs across the overall value chain…
Must be lower than competitors’ cumulative costs
What is a cost driver?
- A factor with a strong influence on a firm costs
- Can be asset based or activity based
( Economies of scale, learning, and experience, supply chain efficiencies, bargaining power, and capacity utilization
What is securing a cost advantage?
- Use lower-cost inputs and hold minimal assets
- Offer only “essential’ product features or services
- Offer only limited product lines
- Use low-cost distribution channels
- Use the most economical delivery methods
Disclose the various types of cost-cutting methods
- Capturing all available economies of scale
- Taking full advantage of experience and learning curve effects
- Operating facilities at full or near full capacity
- Improving supply chain efficiency
- Substituting lower-cost inputs wherever there is little or no sacrifice in product quality or performance
- Using the firm’s bargaining power vis-a-vis suppliers or others in the value chain system to gain concessions
- Using online system and sophisticated software to achieve operating efficiencies
- Improving process design and employing advanced production technology.
- Being alert to the cost advantages of outsourcing or vertical integration
- Motivating employees through incentives and company culture
How can a firm revamp the value chain system to lower costs?
- Selling direct to customers and bypassing the activities and costs of distributors and dealers by using a direct sales force and company website
- Streamlining operations to eliminate low-value - added or unnecessary work steps and activities
- Reduce materials handling and shipping costs by having suppliers locate their plants or warehouse close to the firms own facilities
What are the keys for a firm to be successful low cost provider?
- Spending aggressively on resources and capabilities that promise to drive costs out of the business
- Carefully estimating the cost savings of new technologies before investing in them
- Constantly reviewing cost-saving resources to ensure they remain competitively superior
When do low cost provider strategy work best?
- Price competition among rival sellers is vigorous
- Identical products are available from many sellers
- There are few ways to differentiate industry products
- Most buyers use the product in the same ways
- Buyers incur low costs in switching among sellers
Explain price competition among rival sellers is vigorous
Low-cost providers are in the best position to compete offensively based on price, to gain market share at the expense of rivals, to win the business of price-sensitive buyers, and to survive price wars.
Why is identical products are available from many sellers a good low cost provider strategy?
look-alike products and overabundant product supply set the stage for lively price competition.
Why is few ways to differentiate industry products a good low cost provider strategy?
when the differences between product attributes or brands do not matter much to buyers, buyers are nearly always sensitive to price differences, and industry-leading firms tend to be those with the lowest-priced brands.
Why is most buyers use the product in the same way a good low cost provider strategy?
with common user requirements, a standardized product can satisfy the needs of buyers.
Why is buyers incur low cost in switching among sellers a good low cost provider strategy?
low switching costs give buyers the flexibility to shift purchases to lower-priced sellers having equally good products
or to attractively priced substitute products.
What are the pitfalls to avoid in pursuing a low cost provider strategy?
- Engaging in overly aggressive price cutting that does not result in unit sales gains large enough to get back forgone profits.
- Relying on a cost advantage is not sustainable because rival firms can easily copy or overcome it.
- Becoming too fixated on cost reduction such that the firm’s offering, leading to too features-poor products, to gain the interest of buyers.
How does broad differentiation strategy delivery superior value?
Offering customers something that rivals cannot:
- Incorporate product attributes and user features that lower the buyer’s overall costs of using the firm’s products.
- Incorporating tangible features (Ex. styling) that increase customer satisfaction with the product.
- Incorporate intangible features (Ex. buyer image) that enhance buyer satisfaction in noneconomic ways.
-Signal the value of the firm’s product offering to buyers (Ex. price, packaging, placement, advertising).
What is the other way broad differentiation can delivery superior value?
Signaling value is important when:
- The nature of differentiation is based on intangible features and is therefore subjective or hard to quantify by the buyer.
- Buyers are making a first-time purchase and are unsure what their experience will be with the product.
- Product or service repurchase by buyers is infrequent.
- Buyers are unsophisticated.
When does board differentiation strategy works the best?
- Buyer needs and use for the product are diverse
- There are many ways that differentiation can have value to buyers
- Few rival firms are following a similar differentiation approach
- There is rapid change in the product’s technology and features
State the pitfalls to avoid to pursuing a differentiation strategy
- Relying on product attributes easily copied by rivals
- Introducing product attributes that do not evoke an enthusiastic buyer response
- Eroding profitability by overspending an effort to differentiate the firm’s product offering
- Offering only trivial improvement in quality, service, or performance features vis-a-vis the products of rivals
- Over-differentiating the product quality, features, or services level exceeds the needs of most buyers
- Charging too high a price premium
State the low cost provider strategic target
A board cross section of the market
What is low cost provider basis of competitive strategy?
Lower overall costs than competitors
Disclose low cost provider product line?
A good basic product with few frills (acceptable quality and limited selection
Provide low cost provider production emphasis
A continuous search for cost reduction without sacrificing acceptable quality and essential features
What is low cost provider marketing emphasis?
Low prices, good value. Also try to make a virtue out of product features that lead to low cost
State Board differentiation strategic target
A board cross-section of the market
What is the basis of competitive strategy for board differentiation?
Ability to offer buyers something attractively different from competitors’ offerings
Disclose board differentiation product line
Many product variations, wide selection emphasis on differentiating features
Provide board differentiation production emphasis
- Build in whatever differentiating features buyers are willing to pay for
- Strive for product superiority
State board differentiation marketing emphasis
Tout differentiating features. Also charge a premium price to cover the extra costs of differentiating features
State the keys to maintaining the low-cost strategy
Economical prices. good value.
Also strive to manage costs down, year after year, in every area of the business
What is board differentiation keys to maintain the strategy?
Stress constant innovation to stay ahead of imitative competitors. Also concentrate in a few key differentiating features
What are low cost providers resources and capabilities requirements?
Capabilities for driving costs out of the value chain system.
What are board differentiation resources and capabilities required?
Capabilities concerning quality, design, intangibles and innovation
