CH 5

Question 1

What is a competitive Strategy?

Answer 1

It is management’s game plan for competing successfully and securing a competitive advantage over rival sellers. Also it represents their efforts to provide superior value to customers by offering: attractive combination of price, quality, features, and services.

Question 2

When does the low-cost provider strategy work best with price sensitive buyers?

Answer 2

When the firm’s offering:

1. Has lower cost than rivals
2. Include feature and services essential to buyers
3. Is viewed by buyers as having equivalent or higher value (even if cheaper)
4. and when the firm eliminate nonessential activities or out-managing rivals.

Question 3

What two ways could firm’s translate low cost strategy into profit?

Answer 3

1. Utilize lower-cost edge to underprice rivals, and attract more customers.
2. Maintain present price, and utilize lower-cost edge to increase profit margin.

Question 4

When does low cost strategy works best?

Answer 4

1. Strong price war
2. Low differentiation among rivals
3. No ways to achieve differentiation that have value to buyers
4. Low switching costs
5. Buyers mainly buy in large-volumes
6. New comers use introductory low prices

Question 5

What pitfalls pursing a low-cost provider strategy may have?

Answer 5

1. Overly aggressive price cutting
2. Relying on easily imitated cost reductions
3. Becoming too fixated on cost reduction, which could be not advantageous due to:
   a. buyers need additional features
   b. buyer’s price sensitivity is declining
   c. technological breakthrough nullify the advantage

Question 6

(Low-cost provider) What are important cost drivers in a firm’s value chain that could be manipulated?

Answer 6

1. Labor productivity and compensation costs
2. Economies of scale
3. Learning and experience
4. Capacity utilization
5. Input costs
6. Production techno. and design
7. Communication systems
8. Bargaining power
9. Outsourcing and vertical integration

Question 7

When does broad differentiation strategy work best?

Answer 7

1. the differentiating features clearly set the firm apart from its rivals
2. When the costs of achieving the differentiation that is not easily copied is way less than the additional price it commands (higher profit margins)

Question 8

Benefits of differentiation:

Answer 8

1. Command premium price
2. Increase its unit sales
3. Gain buyers loyalty

Question 9

(broad differentiation) What are important uniqueness drivers in firm’s value chain

Answer 9

1. Input quality
2. Innovation and techno. advances
3. Product features, design, and performance
4. R&D
5. Continuous quality improvement
6. Employee skills, training, & experience
7. Marketing and brand building
8. Customer service

Question 10

Delivering superior value via a differentiation strategy (mainly to commercial buyers):

Answer 10

1. Include product attributes and user features that lower the buyer’s costs
2. Incorporate tangible features that improve product performance
3. Incorporate tangible features that enhance buyer satisfaction in non-economic ways

Question 11

What are ways of signaling value and when is it important?

Answer 11

ways:
1. attractive packaging
2. extensive ad campaigns
3. quality of sales presentation
4. years in business 
5. professionalism
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when:
1. nature of differentiation is subjective
2. Buyers are making a first-time purchase
3. Repurchase is infrequent
4. Buyers are unsophisticated

Question 12

When differentiation works best?

Answer 12

1. Buyer needs and uses of the product are diverse
2. Many ways to differentiate
3. Few rival firms are differentiating
4. Techno change is fast-paced and competition revolves around rapidly evolving product features.

Question 13

Pitfalls to avoid when implementing broad differentiation:

Answer 13

1. Easily copied differentiation
2. Buyers see little value in the features
3. Overspending on differentiation
4. Over-differentiating–hurting quality
5. Charging high premium price
6. Not enough gap between the firm and the rivals, in terms of features.

Question 14

What are focused (or market niche) strategies?

Answer 14

Are strategies developed especially for competing in a narrow piece of the total market as defined by geographic uniqueness or special product attributes.

Question 15

When is focused low-cost or focused differentiation strategy is viable?

Answer 15

1. The niche is big enough to be profitable
2. Industry leaders have chosen not to compete in the niche
3. Multi-segment competitors can’t meet specialized needs of niche buyers and satisfy the expectation of mainstream customers
4. Industry has many different niches
5. Few rivals over the niche

Question 16

Risks of focused strategies

Answer 16

1. Competitors will find a way to enter the niche
2. The preferences and needs of niche members shift over time toward those of the majority buyers (niche disappear)
3. The segment may be so attractive and thus inundated with competitors.

Question 17

What is the best-cost strategy’s profitability contingent on?

Answer 17

1. superior value chain configuration that eliminate non-value-adding activities
2. Unmatched efficiency in managing value chain activities
3. Core competencies that allow differentiating attributes to be incorporated at a low cost

Question 18

Best-cost strategy works best when:

Answer 18

1. product differentiation is the norm
2. Large number of value-conscious buyers
3. Quality valued above price.

Question 19

Danger of an unsound best-cost provider strategy

Answer 19

is being stuck in the middle.

not enough efficiency to lower costs, and no high-end differentiation