Block 4 Flashcards
What does a firm’s competitive strategy deal with?
A firm’s competitive strategy deals exclusively with the specifics of its
efforts to position itself in the market-place,
please customers,
ward off competitive threats, and
achieve a particular kind of competitive advantage.
Key factorss that
distinguish one strategy
from another
1 Is the firm’s market target
broad or narrow?
2 Is the competitive advantage
pursued linked to low costs
or product differentiation?
What are and explain THE FIVE GENERIC COMPETITIVE STRATEGIES
1 Low-cost
provider
Striving to achieve lower overall costs than rivals on
products that attract a broad spectrum of buyers
2 Broad
differentiation
Differentiating the firm’s product offering from rivals’ with
attributes that appeal to a broad spectrum of buyers
3 Focused low cost
Concentrating on a narrow price-sensitive buyer segment
and on costs to offer a lower-priced product
4 Focused
differentiation
Concentrating on a narrow buyer segment by meeting
specific tastes and requirements of niche members
5 Best-cost
provider
Giving customers more value for the money by offering
upscale product attributes at a lower cost than rivals
What should we do to make low-cost approaches effective ? (2)
1 Pursue cost savings that are difficult to imitate
2 Avoid reducing product quality to unacceptable levels
Name 2 Competitive advantages and 2 risks of low cost startegy
Comp advantages
-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
Risks
● Low pricing does not attract enough new buyers
● Rival’s retaliatory price-cutting sets off a price war
what are Successful low-cost leaders good at ?
Successful low-cost leaders, who have the
lowest industry costs, are exceptionally good at
finding ways to drive costs out of their
businesses and still provide a product or service
that buyers find acceptable.
What is a low cost advantage?
Cumulative costs across the overall value chain must
be lower than competitors’ cumulative costs.
How to 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
What is a cost driver ?
A cost driver is a factor that has a strong
influence on a company’s costs.
Can be asset-based or activity-based
5 ways to secure a cost advantage are?
● 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
What are the 10 cost drivers/ 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-à-vis suppliers or
others in the value chain system to gain concessions - Using online systems 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
10.Motivating employees through incentives and company
culture
What are the 3 ways to REVAMPING THE VALUE CHAIN SYSTEM
TO LOWER COSTS ?
♦ Selling direct to consumers and bypassing the
activities and costs of distributors and dealers
by using a direct sales force and a 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
warehouses close to the firm’s own facilities
What is the basis and THE 3 KEYS TO BEING A SUCCESSFUL
LOW-COST PROVIDER
Success in achieving a low-cost edge over rivals
comes from out-managing rivals in finding ways to
perform value chain activities faster, more
accurately, and more cost-effectively by:
● 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 does a low cost provider strategy work best? (5)
- 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.
Pitfalls with a low cost provider strategy (4)
♦ Engaging in overly aggressive price cutting that does not
result in unit sales gains large enough to recoup forgone
profits
♦ Relying on a cost advantage that is not sustainable
because rival firms can easily copy or overcome it
♦ Becoming too fixated on cost reduction such that the
firm’s offering is too features-poor to gain the interest of
buyers
♦ Having a rival discover a new lower-cost value chain
approach or develop a cost-saving technological
breakthrough