CH 5 - 8 Flashcards
What are 5 things that a company wants?
1.please customers 2.get more customers 3.beat competition/Rivals 4.Have a competitive advantage 5.respond to changes in the market
What is Low Cost, Broad Buyers
Buyer conscious-comparable quality (less frills) at a lower price. ex. DSW, Dell its functional but not the best -Things Are really cheap for people.
What kind of buyers are these?
budget concious
What happens if there are absolutely NO FRILLS?
Risk - not everyone wants a just functional product
How does the company make money if the product is low cost?
a lot of customers buying a lot even a little profit from each customer adds up price cutting not that much cost/unit less than competition
How does the company lower the cost/unit while making the product? (Answer: EITHER Remove more cost-effective steps – AND/OR eliminate or bypass steps) . So, which steps? We invest ____ to save on_____?
_short term_ to save on _long term_. (don’t lease buy)
To drop the distributor, we sell directly to the consumer and we save _____% of cost.
30-50%
To drop the supplier, we coordinate to have _______parts and are near the company.
pre-assembled
What is Low Cost, Focused Buyers?
Concentrating on a narrow buyer segment and out competing rivals on costs, thus being in position to win buyer favor by means of a lower-priced production offering.
What is market niche?
small amount of buyers ex. hertz car rental ppl walking off plane
What is Broad Differentiation, Broad Buyers?
seeking to differentiate the companys product offering from rivals with attributes that will appeal to a broad spectrum f buyers
What are Buyers willing to pay more for - Examples?
willing to pay more for fashion, select features, one stop shopping, prestige, reliability, high tech, full range of service.
How do you know what a buyer is willing to pay more for (*hint – 2 ways)?
study what buyers consider important and value (willing to pay more for) (different from competitor so not easily copied)
How do you make more money (*hint 4 ways)?
don’t add on too much extra cost to differentiate (making bottle cap so expensive) have customer loyalty charge more so its more expensive to and ppl spend more have more customers
How do you make the product?
you want a unique product, good performance, customer service or additional services, custom order variety, innovation, continuous quality improvement, increase marketing, high quality input,improve skill, knowledge, experienced team
How do you keep cost down?
(persuade customer) lower costs for buyer in other ways - energy efficiency, fuel efficient, less maintenance, more reliability tangible special features intangible special features (image status, prestige, upscale fashion, superior craftsmanship, finer things in life) signal value- packaging, and brochure, presentations, luxury in store, staff is professional
When does it work best? (Answer: lot of possibilities, many ways to differentiate, few rivals)
1.lot of possibility window of opportunity many ways to differentiate (retail apparel age groups)\ 2.few rivals with similar differentiation (less direct competition)
When does Differentiation Fail?
it will fail if competition copies quickly, unenthusiastically received by buyers, too timid for a change, if you overspend on frills, over spend on frills. add too many irrelevant frills so the consumer just goes back to basics (old ppl just want a flip phone not the iphone)
What is Differentiated, Focused?
concentrating on a narrow buyer segment and out competing rivals with a product offering that meets the specific tastes and requirements of niche members better than the product offerings of rivals
What does it depend on? (Answer: buyer segment, ability to stand apart)
buyer segment looking for special product attributes or seller capabilities Ability to stand apart - upscale ex ferrari market to only 20,000 people/ ex. trader joes entertainment (raspberry salsa) Target niche is large enough to be profitable or will grow industry leaders are not fighting for that niche so not direct competition with them Customer goodwill and loyalty are buffers
What size of company is best?
Especially good when small or medium company
How is Marriot a risk?
it is a camelion they have different types on marriots. the holiday in or high end or busness guy its able to compete in different markets.
What is Best Cost? What kind of buyers are these and what do they want?
hybrid (upscale product at a low cost) you want a special feature but at the best price
Does it work best in a depression, growth, recession?
Recession
What is the risk of this? (*Answer when it is squeezed between ______ and _____ So it NEEDS a _____ to justify the price above the lost cost leader
_lower__better feature__better product_
In Offensive, what are you seeking?
Market Share
You ________the opponent’s strength, but _______ your strongest strategic assets. you don’t follow what your friend has and you are the peacock and exploit what you’re good at.
__don’t follow_____exploit__
What are examples of Offensive Strategies?
you are trying to be active- you want more of the market share. You want to find your competition and you want to take them down. You’re not just going to pick anyone- you want to go to the weak, vulnerable competitor. You will exploit your own strength. Focus on enhancing your own strength. You need to be cautious about being futile though.
• Actively lowering your costs, offer promotions
• First to adapt a next generation product (the touch screen for example)
• Continuous product innovation (you need skills and resources)
• Improve idea of other companies
• Blue ocean- is a strategy where you create a bran new market segment that never existed before.lowering your cost and offer promotions be the first to adopt an next gen. product ( high risk b/c high investment, but reaction unknown) continuous product innovation (need skills and buyer enthusiasm) improve ideas of other companies Blue Ocean : create a new industry or market segment (ex. cirque de soliel -circus for adults)
What 2 items determine how long an offensive is an advantage?
- how do buyers respond (if the buyers are over it?) 2. do your rivals recognize what you’re doing and copy it
In Defensive What are examples of Defensive Strategies?
new features • new models • broaden product line • lengthen warranties • challenge quality and safety of rivals
In Timing for both Offensive and Defensive, we have the tortoise & the hare What is this special point on the learning curve?
. buyer demand explodes! Market takes off! people just want the product ex. may depend on complementary product or service, buyer needing new skills
What are 4 disadvantages of First Movers?
its expensive to pioneer • if primitive buyers are not impressed • if theres rapid market evolution • if the mass market needs are unclear yet
Scope of Operations
- Horizontal integration- 2. Vertical integrations-
What is Horizontal? (*hint Coca Cola. It deals with _______. Another phrase is __&__)
range of products/ services, mergers and aquisitions
What is merger? What is acquisition? How does it work? How is morale? What are distribution channels? What are 4 advantages?
It works because you are very efficient merger- combine acquisition- purchase or absorb a company • By coca cola merging it makes a small company into a major deal. It becomes more efficient and fire workers and close many plants from he small company. Morale goes down because of this. • Distribution channels • advantages- you can enter markets all over the world by merging o you can sell in wal-mart and once you sell at walmart you’re set because they have stores all over the world. o you get the brand name recognition
What is Vertical? (*hint 3 clock wheels representing _____, company and ______ and outsourcing)
supplier, distributor, actual company (value chain)
In what 2 ways is profitability boosted?
cost savings and differentiation)
5 Competitive Strategies
1.low cost, Broad Buys (Budget Conscious 2.Low cost, Focused (market niche) 3.Broad Differentiation, Broad Buyer (willing to pay mre for somthing you want) 4.Differentiated, Focused (for very few people) 5. Best cost, a hybrid (upscale product at low cost
To vertically integrate to the SUPPLIER, (ex. Apple chips, Zara dye). You need economies of scale or efficiencies as well as _________for Apple and ______for Zara.
_technology, research and development, proprietary know how_ ____ better quality, better products, great customer service
To vertically integrate to the DISTRIBUTOR (ex. All State, State Farm, ehealth), you access the end-users to create _
_brand awareness_.
It is NOT always good strategic or economic sense to be totally _____and____
___independant__ and ___self sufficient____.
While you need a good partner and benefits for both partners,_% fail
_60-70_% fail.
Are you independent?
yes
How does Low cost, broad buyers work?
We’re looking at comparable quality at a lower price. For example: Dell laptop- very cheap. It is a functional product and you can pay really little for it. The problem is, if you don’t have any frills some people may not want it- they don’t want a generic product. The buyers are generally budget conscious. It is also difficult for rivals to copy- because it’s generic so there is no way to pull you in unless you have a budget conscious deal
What are the long term benefits of low cost, broad buyers?
- you know that there is going to be a good deal. For example Costco. So hoe does the company make money if they are selling things for so cheap? Even a little profit on a lot of people creates a large profit for the company. As a company, you don’t want to cut your price too much because then you will loose money. Also, the cost of production is really cheap. Cost per unit is less than the competition’s.
When is it popular?
When new technology development occurs at a furious pace
What are 2 major advantages?
low investment so low risk And more flexible
what is the Major R&D risk?
Access by others to proprietary knowledge, tech, trade secrets, other peple can access your knowledge and trade secrets
What is a Joint Venture? What is the main difference vs. Strategic Alliance & Partnership
new corporate entity
How does Low cost, broad band decrease cost per unit?
? (Jewelry necklace analogy) you look at the value of the chain of the necklace- you try to get rid of the big steps, or eliminate or bypass some steps. For example, you can make the chain of the necklace smaller so that the cost is reduced. Or you can take off some of the diamonds in the necklace, thus, reducing the price. The company will look at the 5 top cost drivers and they see which steps they can eliminate. If something is not selling, they get rid of it. You also choose your supplier very carefully- if you want to buy a diamond you have the option of going to Tiffany’s or to 47th street. If you can have economies of scale then you can decrease the cost. Starbucks picks the best locations- they passed the learning curve so they already lowered their costs. Full capacity operations spread cost over many more units. Efficiency. Low cost inputs (raw materials, component parts) quality same or design out these inputs. Bargaining power (especially with suppliers). If you eliminate things that you don’t need (like employees, fancy equipment, etc.) you save money. You can also lower cost by outsourcing. If you have an interesting environment in your work place the productivity of your employees can increase and your costs decrease- because you don’t need more employees. In the short term you make investments- you spend money today in order to save money in the future. You also stash cash so that when something comes up in the future you have cash to spend. Sell directly to customers without distributors or dealers. You coordinate with suppliers: preassemble parts, near the company,
Low cost, Focused (market niche)
Lower the cost for a very small part of the market. You are targeting a very specific niche. Niche- a well-defined segment of buyers.
Broad Differentiation, Broad Buyers
(willing to pay more for something that you want). Think Starbucks:You want an extra frill and you are willing to pay more for it. You want a cup of coffee, but you want luxury coffee so you pay $6 for a latte from Starbucks.
Outsource major advantage is that this allows the company to
focus on what’s at hand. It narrows your scope or expertise.(ex. Nike marketing & branding)
Outsource The company then focuses on activities that it does_____and____ _ by law of economics
better_ & _cheaper_
The reason that call centers are outsourced is that they are considered _______.
are to reduce headcount and possibly to get assets off of the books – in other words, to reduce management overhead and improve the balance sheet.
What are the 3 risks of outsourcing? (ex. U.S.A. laptops & cell phones in Asia)
USA laptop and cell phones except apple are manufactured in Aisa and designed in Aisa. SO the company lacks direct control and cannot monitor or coordinate Aisa also lacks incentive to do an incredible job.
. How do you know what a buyer is willing to pay more for?
You research. You want to make sure that your competitor can’t copy you. The customer is willing to pay more you make more money. You build brand loyalty. You also need to keep your costs of differentiation low so that your profits will be higher. You want to make a unique product with special features and something that is worthy of paying more. If you custom order you are automatically up on your customer service. They also have strong marketing campaigns.
- Broad Differentiation, Broad Buyers. How do you keep the costs down?
You lower the cost for the buyer. Tangible and intangible special features. Signal value- packaging, ads, brochure, presentation, luxury in store—you are making the customer feel better about the product and it makes them feel better about paying more.
- Differentiated, Focused
(for very few people) it depends on the buyer segment that you are targeting. It’s a very narrow slice of your population. Not everyone will agree to pay more for this upscale product that you have. For example, Ferrari only markets to 20,000 people of the American population. You want your niche to be profitable enough so that you can make money. This is mainly popular in luxury brands. The industry leader- Wal-Marts of the world are not competing with you. They are selling something else. You’re looking for the customer’s good will and loyalty.it works especially well if it is a small or medium company because you’re targeting a small market.
What are the Differentiated, Focused risks?
Your competition can outcompete you. Expertise or capabilities of other companies that can offset you. Also you need to be careful not to lose your niche- you cant suddenly decide to change your niche over night. If you want to become broad market it’s a little tricky- you will need to change a lot of other things about your company.
- Best cost, a hybrid. Upscale product at low cost.
Good value for what you are buying. High value, fair cost. Value conscious buyers- they want a fair value for what they are buying. You want good to very good products- not baseline Wal-Mart products. You want desirable features at a relatively low price.
Does the CEO do all of the strategy making? Why/Why not? Delegates are held ____ & ____.
delegates jobs because he can’t create all the strategies for all the companies - tells delegates what part of the company they are in charge of but he tells them that they are responsible but CEO has to give ok.
There are 4 critical strategic tasks:
- eneter a new industry 2. Transfer skill/ technology 3. Investment priorities 4. boost the combination
a. Enter a new industry either by _
start a new business_, _acquire a company_ or _joint venture or strategic alliance_
Transfer skills or technology by ____
sharing____ facilities or resources
Investment _____ where potential earnings are ______. We also get rid of investments which are either ____ performers or are in a ____ industry.
Investment _priorities_ where potential earnings are _higher_. We also get rid of investments which are either _bad_ performers or are in a _weak_ industry.
Business Combinations either stay the _____, are broader, are leaner or are _______.
combination restructured
Related to b, the company considers if the industry is attractive and the returns are consistently good. With the diverse combination, is PERFORMANCE better together vs. individually alone =
synergy_ (*basically are 1 + 1 = 3)?
In acquiring a company, there are positives and negatives. For this chapter, what is premium? When is it a good idea to pay a premium for a successful company? When is it a good idea to buy a struggling company at a bargain price?
Positives: quicker, no barriers to entry, access complimentary, access something not easily developed internally Negatives: many fail, expensive (company price, negotiating, completing, integrate into existing company) Premium: price offered exceeds market value by 3040% like a tax Is it better to pay a premium for a successful company or a struggling company at a bargain price.
. In Building a Business from scratch, there are positives and negatives. Usually, what is the competition? How does high risk/high return work here?
• industry usually has small firms- not bad competition • Positives: realize greater profit (if you fix up the company and then sell it for more money), enter new or emerging industry (enter any market you want), • Negatives: time consuming (making it from the ground up takes a long time and might not come out so good),uncertainty, high risk, high likelihood of failure
What is licensing in the Joint Ventures Section?
• strategic alliance, centered on a licensing may be the lowest cost alternative • ex people buy the disney license to make product with disney characters
When does the best cost,work best
when product differentiation is the norm- when everyone wants distinctive features. Either a medium quality product at a very cheap price or a high end product at a fair/average price.
How long is the offensive strategy successful for?
Until the industry changes, or until your buyers get tired and they’re over it.
Defensive strategies:
you are the goal keep- you want to lower the risk of being attacked. You are protecting yourself and your resources.
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· <!--[endif]-->New features
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· <!--[endif]-->New models
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· <!--[endif]-->Broaden your product line
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· <!--[endif]-->Lengthen your warranties
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· <!--[endif]-->Challenging your rivals
Timing offensive/defensive Moves
Point on the learning curve when everything changes; sometimes a company will have a product but there can be a glitch, until it is fixed, this product wont be sellable (something that holds back everyone from having that product- like people may not want to iPad because there is no keyboard).
First mover-
First mover’s advantages:
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· <!--[endif]-->High risk, high cost to develop high reward with monopoly
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· <!--[endif]-->New entrants
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· <!--[endif]-->Set technical standards, create complimentary products
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· <!--[endif]-->Helps to have money, competitive capabilities, astute managers
First mover’s Disadvantages:
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· <!--[endif]-->Very expensive to pioneer something
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· <!--[endif]-->If primitive products and buyers are not impressed you wont make any money
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· <!--[endif]-->If rapid market evolution so jump to the next step
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· <!--[endif]-->If mass market needs are not clear yet
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· <!--[endif]-->Instead if fast follower or late mover, you simply imitate or improve move
Scope of Operations:
Horizontal integration** **
Vertical integrations-
Horizontal integration
Vertical integrations-
Strategic Alliance:
Joint venture-
when two companies create a new corporate entity. You are not separate here- you are creating a separate new company.
Outsourcing
: narrows the scope. Focus on the core issue, focuses on activities you do better or cheaper (you focus on what you are really good at and let other outsourcing deal with what they’re really good at). It gives the company flexibility to shop the market. It reduces your risks. Some of the risks are reduction of customer service, the company now lacks direct control because other countries are now taking charge of your company, also the other countries lack incentives to do a really good job.
Diversified Business Enterprise
Does one strategy do all the strategies for all of the departments in his company?
The CEO delegates because it is not possible for him to do everything on his own.
However, he can lose control of the situation so he allows them to delegate but ultimately he is the one who is responsible for all of the outcomes.
Enter a new industry-
- the company can start a brand new business. Or they can acquire new businesses. Or you can merge two existing businesses by entering into a joint venture or a strategic alliance.
Transfer skills/technology-
Investment priorities
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- <!--[endif]-->Investment priorities- you are looking for an industry with high potential earnings. Also what can you get rid of in your company to be more lean?
Boost the combination of success
If you have a good company, should you diversify or not?
You ask three questions for shareholder value:
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- <!--[endif]-->Is this stock even attractive? Does it have consistently good returns or earnings?
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- <!--[endif]-->Are the costs of entering the industry high?
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- <!--[endif]-->Does the combination of this company perform better together than individually?
If you are entering a new business: you need to consider if you
you have enough resources and enough capabilities, are there barriers to entry? Also do you need to enter quickly or can you wait? Also, are there cost constraints? Will your return on investment be large enough?
Acquire a new business- Positives
: it’s quick, there are no barriers to entry, access complementary, access is not easily developed internally
Acquire a new business Negative
many fail, expensive- company price, negotiating, integrate into existing business, there is a premium so it’s like a tax and it can get really expensive
Internal Development-
builds a new business from scratch. You can try to build from the ground up and the industry usually has small firms so there isn’t too much competition
Internal Development posotive
Internal Development- Negative
Negatives: it is extremely time consuming, it is a bit uncertain, there is a high risk.
Joint Venture
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- <!--[endif]-->they usually fail. A strategic alliance centered on a licensing agreement and that may be the lowest cost alternative.
Diversification into related businesses:
Economies of Scope
- that special skill that you transfer to your diversified business.
Whatever your competitive advantage is you want to use it to your advantage. This is in contrast with
private equity
private equity
you dump a lot of money and you have great managers. You aren’t using your competitive advantage.
