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
What are the 3 effective approaches to initiate differentiation ?
● Carefully study buyer needs and behaviors, values,
and willingness to pay for a unique product or service
● Incorporate features that both appeal to buyers and
create a sustainably distinctive product offering
● Use higher prices to recoup differentiation costs
What are the 3 advantages of using a differentiation strategy ?
● Command premium prices for the firm’s products
● Increased unit sales due to attractive differentiation
● Brand loyalty that bonds buyers to the differentiating
features of the firm’s products
When is differentiation effective/ enhances profitability ?
Differentiation enhances profitability whenever a
company’s product can command a sufficiently
higher price or produce sufficiently greater unit
sales to more than cover the added costs of
achieving the differentiation.
What is the essence of a broad differentiation strategy ?
Offering unique product attributes that a wide
range of buyers find appealing and worth paying
for.
Describe uniqueness drivers and what they can do. (5)
A uniqueness driver is a factor that can have a
strong differentiating effect
● Have a strong differentiating effect
● Be based on physical as well as functional attributes
of a firm’s products
● Be the result of superior performance capabilities of
the firm’s human capital
● Have an effect on more than one of the firm’s value
chain activities
● Create a perception of value (brand loyalty) in buyers
where there is little reason for it to exis
Name the 8 value drivers which manage the value chain to create differentiating attributes
- Create product features and performance attributes
that appeal to a wide range of buyers. - Improve customer service or add extra services.
- Invest in production-related R&D activities.
- Strive for innovation and technological advances.
- Pursue continuous quality improvement.
- Increase marketing and brand-building activities.
- Seek out high-quality inputs.
- Emphasize human resource management activities
that improve the skills, expertise, and knowledge of
company personnel.
Name the 2 approaches
to enhancing
differentiation
through changes
in the value
chain system
1 Coordinating with channel
allies to enhance customer
perceptions of value
2 Coordinating with suppliers
to better address customer
needs
4 FACTORS TO : DELIVERING SUPERIOR VALUE VIA A BROAD DIFFERENTIATION STRATEGY (4)
- Incorporate product attributes and user features that lower the
buyer’s overall costs of using the firm’s product - Incorporate tangible features (e.g., styling) that increase
customer satisfaction with the product - Incorporate intangible features (e.g., buyer image) that enhance
buyer satisfaction in noneconomic ways - Signal the value of the firm’s product offering to buyers (e.g.,
price, packaging, placement, advertising)
When is signaling value important ?
● 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.
4 important points to remember in regards to differentiation
♦ Differentiation can be based on tangible or
intangible attributes.
♦ Easy-to-copy differentiating features cannot
produce a sustainable competitive advantage.
♦ Any differentiating feature that works well is a
magnet for imitators.
♦ Overdifferentiating and overcharging are fatal
strategy mistakes.
What are the 2 SUCCESSFUL APPROACHES TO
SUSTAINABLE DIFFERENTIATION. name and explain each (7)
1 Differentiation that is difficult for rivals to
duplicate or imitate
● Company reputation
● Long-standing relationships with buyers
● A unique product or service image
2 Differentiation that creates substantial switching
costs that lock in buyers
● Patent-protected product innovation
● Relationship-based customer service
When does a differentiation strategy work best ? ( market circumstances that favour) (4)
Buyer needs
and uses 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
What are the 6 pitfalls to avoid when 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 on efforts to
differentiate the firm’s product offering
♦ Offering only trivial improvements in quality, service, or
performance features vis-à-vis the products of rivals
♦ Over-differentiating the product quality, features, or
service levels exceeds the needs of most buyers
♦ Charging too high a price premium
When is a focused approach most attractive? (5)
♦ The target market niche is big enough to be profitable
and offers good growth potential.
♦ Industry leaders chose not to compete in the niche;
focusers avoid competing against strong competitors.
♦ It is costly or difficult for multi-segment competitors to
meet the specialized needs of niche buyers.
♦ The industry has many different niches and segments.
♦ Rivals have little or no entry interest in the target
segment.
What are THE RISKS OF A FOCUSED LOW-COST OR
FOCUSED DIFFERENTIATION STRATEGY
- Competitors will find ways to match the focused
firm’s capabilities in serving the target niche. - The specialized preferences and needs of
niche members shift over time toward the
product attributes desired by the majority of
buyers. - As attractiveness of the segment increases, it
draws in more competitors, intensifying rivalry
and splintering segment profits.
What are the 2 approaches to a best cost provider strategy and whom does it target ?
1 Differentiation:
Providing desired quality,
features, performance,
service attributes
2 Low Cost Provider:
Charging a lower price
than rivals with similar
caliber product offerings
Target : Value-Conscious Buyer
When does a best cost provider strategy work best? (4)
♦ Product differentiation is the market norm.
♦ There are a large number of value-conscious
buyers who prefer mid-range products.
♦ There is competitive space near the middle of
the market for a competitor with either a
medium-quality product at a below-average
price or a high-quality product at an average or
slightly higher price.
♦ Economic conditions have caused more buyers
to become value-conscious.
What is the risk of a best cost provider strategy?
Getting squeezed on both sides by low cost and differentiation strategy holder companies
What are the contrasting features of the 5 generic strategies ?(4) each generic strategy :
Each generic strategy:
● Positions the firm differently in its market
● Establishes a central theme for how the firm intends to outcompete rivals
● Creates boundaries or guidelines for strategic change as market circumstances unfold
● Entails different ways and means of
maintaining the basic strategy
Explain each strategy in regards too strategic target and basis for strategy (10)
1= Low cost
2= broad differentiation
3= focused low-cost
4= focused differentiation
5= best cost
Strategic
target:
1 A broad crosssection of the
market
2 A broad crosssection of the
market
3 A narrow market niche
where buyer needs
and preferences are
distinctively different
4 A narrow market
niche where buyer
needs and
preferences are
distinctively
different
5 Value-conscious
buyers. Or, a middlemarket range
Basis of
competitive
strategy:
1 Lower overall
costs than
competitors
2 Ability to offer
buyers something
attractively different
from competitors’
offerings
3 Lower overall cost
than rivals in serving
niche members
4 Attributes that
appeal specifically
to niche members
5 Ability to offer better
goods at attractive
prices
Explain each strategy in regards to product line and production emphasis: (10)
1= Low cost
2= broad differentiation
3= focused low-cost
4= focused differentiation
5= best cost
Product
line:
1 A good basic
product with few
frills (acceptable
quality and limited
selection)
2 Many product
variations, wide
selection, emphasis
on differentiating
features
3 Features and
attributes tailored to
the tastes and
requirements of niche
members
4 Features and
attributes tailored to
the tastes and
requirements of
niche members
5 Items with appealing
attributes and
assorted features;
better quality, not
best
Production
emphasis:
1 A continuous
search for cost
reduction without
sacrificing
acceptable quality
and essential
features
2 Build in whatever
differentiating
features buyers are
willing to pay for;
strive for product
superiority
3 A continuous search
for cost reduction for
products that meet
basic needs of niche
members
4 Small-scale
production or
custom-made
products that match
the tastes and
requirements of
niche members
5 Build in appealing
features and better
quality at lower cost
than rivals
Explain each strategy in regards to marketing emphasis and keys to maintaining the strategy: (10)
1= Low cost
2= broad differentiation
3= focused low-cost
4= focused differentiation
5= best cost
Marketing
emphasis:
1 Low prices, good
value
Also, try to make a
virtue out of product
features that lead to
low cost
2 Tout differentiating
features.
Also, charge a
premium price to
cover the extra costs
of differentiating
features
3 Communicate attractive
features of a budget priced product offering
that fits niche buyers’
expectations
4 Communicate how
product offering does
the best job of
meeting niche buyers’
expectations
5 Emphasize delivery
of best value for
the money
Keys to
maintaining
the strategy:
1 Economical prices,
good value
Also, strive to manage
costs down, year after
year, in every area of
the business
2 Stress constant
innovation to stay
ahead of imitative
competitors
Also, concentrate on
a few key
differentiating
features.
3 Stay committed to
serving the niche at the
lowest overall cost;
don’t blur the firm’s
image by entering other
market segments or
adding other products
to widen market appeal
4 Stay committed to
serving the niche
better than rivals;
don’t blur the firm’s
image by entering
other market
segments or adding
other products to
widen market appeal.
5 Unique expertise in
simultaneously
managing costs
down while
incorporating
upscale features
and attributes
Explain each strategy in regards to resources and capabilities required: (5)
1= Low cost
2= broad differentiation
3= focused low-cost
4= focused differentiation
5= best cost
Resources
and
capabilities
required:
1 Capabilities for driving
costs out of the value
chain system.
Examples: large-scale
automated plants, an
efficiency-oriented
culture, bargaining
power
2 Capabilities
concerning quality,
design, intangibles,
and innovation
Examples: marketing
capabilities, R&D
teams, technology
3 Capabilities to lower
costs on niche goods
Examples: Lower input
costs for the specific
product desired by the
niche, batch production
capabilities
4 Capabilities to meet
the highly specific
needs of niche
members
Examples: custom
production, close
customer relations.
5 Capabilities to
simultaneously
deliver lower cost
and higher-quality
or differentiated
feature
Examples: TQM
practices, mass
customization
How does a firms strategy link to its resources ? (2)
♦ A firm’s competitive strategy is most likely to
succeed if it is predicated on leveraging a
competitively valuable collection of resources
and capabilities that match the strategy.
♦ Sustaining a firm’s competitive advantage
depends on its resources, capabilities, and
competences that are difficult for rivals to
duplicate and have no good substitutes.
