business strategy Flashcards
what are generic competitive strategies?
‘generic strategy’ = basic types of competitive strategy that hold across many kind of business situations
what is competitive strategy?
concerned with how a company, business unit or organisation achieves competitive advantage in its domain of activity
what is competitive advantage?
how a company, business unit or organisation creates value for its users, both greater than the costs of supplying them and superior to that of rivals
what elements are included in michael porter’s generic strategies?
competitive advantage:
- lower cost
- differentiation
competitive scope:
- broad target
- narrow target
what is cost leadership on MP’s generic strategies?
- lower cost
- broad target
what is differentiation on MP’s generic strategies?
- differentiation
- broad target
what is cost focus on MP’s generic strategies?
- lower cost
- narrow target
what is differentiation focus on MP’s generic strategies?
- differentiation
- narrow target
explain a cost leadership strategy
involves becoming the lowest-cost organisation in a domain of activity
what are 4 key cost drivers that can help deliver cost leadership?
- lower input costs
- economies of scale
- experience
- product/process design
explain the differentiation strategy
involves uniqueness along some dimension that is sufficiently valued by customers to allow a price premium
what are 2 key issues of the differentiation strategy?
- the strategic customer on whose needs the differentiation is based
- key competitors: who are the rivals and who may become a rival
what are the key drivers of differentiation?
- product and service attributes: providing better or unique features (e.g. Apple iphone)
- complements: building on linkages with other products/services (e.g. Apple and App store)
- customer relationships: customer services, customisation or marketing and reputation
what 4 strategies are included in Porter’s generic strategies?
- cost leadership
- differentiation
- cost focus
- differentiation focus
explain the focus strategy
targets a narrow segment of domain of an activity and tailors its products/services to the needs of that specific segment to the exclusion of others
what are the two types of focus strategy?
- cost-focus strategy
- differentiation focus strategy
stuck in the middle?
Michael Porter argues:
there is a fundamental trade-off between a cost-leadership strategy and a differentiation strategy. thus, firms need to adopt and stick to one single generic strategy
- failure to do this leads to a danger of being ‘stuck in the middle’ - doing no strategy well
what is the strategy clock?
allows for a dynamic approach for examining alternative generic strategies and gives more scope for hybrid strategies
- has 2 distinct features
what are the 2 distinct features of the strategy clock?
- it is focused on the prices to customers rather than the costs to organisations
- the circular design allows for incremental adjustments in strategy rather than stark choices
what strategies are included in the strategy clock?
- differentiation strategies
- low price strategies
- hybrid strategies
- non-competitive strategies
what are differentiation strategies (strategy clock)?
strategies in this zone seeks to provide products that offer benefits that differ from those offered by competitors
there are a range of alternative strategies from:
- differentiation without price premium (12 o clock) = used to increase market share
- differentiation with price premium (1 o clock) = used to increase profit margins
- focused differentiation (2 o clock) = used for customers that demand top quality and will pay a big premium
what are low-price strategies (strategy clock)?
low price combined with low perceived value
- a standard low-price strategy (9 o clock): low prices combined with similar quality to competitors aimed at increasing market share; needs a cost advantage (such as economies of scale) to be sustainable -> e.g. Aldi and Lidl in grocery retailing
- a ‘no-frills’ strategy (7 o clock): focusing on price sensitive market segments ; typified by low-cost airlines like Ryanair and easyJet
explain hybrid strategies
seeks to achieve low prices and higher benefits simultaneously
- to enter markets and build position quickly
- as an aggressive attempt to win market share
- to build volume sales and gain from mass production
explain non-competitive strategies
- increased prices with low perceived product or service benefits
- in competitive markets, such strategies will be doomed to failure
- only feasible where there is a near monopoly position
what is business strategy concerned with ?
concerned with seeking competitive advantage in markets
what is a business model?
it explains what value is offered to customers and others, how the activities of the business create this value, and how the business makes money and manages costs
- new entrants with new business models can radically change the dynamics and competition in a market and establish superior positions - e.g. Uber and Netflix
what are the business model components?
- value creation
- value configuration
- value capture
what is value creation?
what is offered to what customer segment?
- customer needs and problems: value and benefit
- target customer and market segment
- value for other participants
what is value configuration?
how is the value proposition structured?
- composition and selection of resources and activities
- linkages between and system of activities
- identifies what participants perform and what activities
what is value capture?
why does the model generate a margin?
- revenue stream and payments
- cost structure and drivers
- apportion of value between stakeholders
what are the 3 typical business model patterns?
- razor and blade
- freemium
- peer-to-peer
what is a razor and blade pattern?
named after the classic Gillette strategy of selling razors cheaply and profiting from sales of high priced blades (e.g. mobile phones, ink-jet printers)
what is a freemium model?
combines ‘free’ and ‘premium’
- basic services are free to attract customers, who then upgrade to expensive premium services
- e.g. Spotify and YouTube
what is a peer-to-peer model?
brings together people and/or businesses without having to go through a middle man
- e.g. Airbnb , Uber
what is a multi-sided platform?
a business model that brings together 2 or more distinct but interdependent groups of participants to interact on a platform
what can a multi-sided platform be?
it can be:
- a technology (e.g. Apple’s iOS system)
- a product (e.g. Nintendo’s video game console)
- a service (e.g. Uber’s transportation service)
can have 2 or more sides
examples of platform providers
side 1 (customer/users) = guests, passengers, shoppers, gamers, users
platform provider = accommodation rentals (e.g. Airbnb), personal transportation (e.g. Uber), shopping malls, game consoles, smartphone operating systems (e.g. Apple)
side 2 (complementors) = hosts, drivers, merchants, game developers, app developers
what are three important factors that need to be considered in multi-sided platforms?
- platform distinctiveness and size
- choosing platform sides
- multi-homing costs
explain platform distinctiveness and size
as with any product and service, a platform must have distinctive features in competition with other platforms to attract participants and being sufficiently large to attract diverse sides
explain choosing platform sides
deciding what sides to include and how many is crucial for generating value for diverse sides and growth in network effects
explain multi-homing costs
a platform participant is multi-homing when it is possible to use more than one platform at the same time
