Ch 5 - Test 2 Flashcards
Generic Strategies
Low-cost leadership, Differentiation, Focus
Competitive Advantages
exists when a firm’s strategy gives it an edge in:
- defending against competitive forces
- scurrying customers
Keys to Success
Convince customers of Superior Value:
- Offer buyers a good product at a low price
- Use differentiation to provide a better product buyers think is worth a premium price
Objectives of Competitive Strategy
- Build a Competitive Advantage
- Cultivate Clientele of Loyal Customers
- Know the socks off rivals, ethically and honorably
Low-Cost Leadership: Strategy Objectives
Open up a sustainable cost advantage over rivals, using lower-cost edge as a basis:
- Under-price rivals and reap market share gains
- Earn higher profit margin selling at going price
Low-Cost Leadership: Key’s to Success
Make achievement of low-cost relative to rivals the THEME of firm’s business strategy: low overall costs does not consist of just manufacturing or production costs
Approaches to Securing a Cost Advantage
#1: Do a better job than rivals by optimizing Value Chain #2: Revamp value chain to bypass some cost-producing activities
Approach 1: Controlling the Cost Drivers
- Capture Scale Economics; avoid scale diseconomies
- Capture learning and experience curve effects
- consider linkages with other activities in value chain
- Compare vertical integration vs. outsourcing
- Assessing first-mover adv. vs. disadv.
- Control percentage of capacity utilization
- Make smart choices related to operations and overhead
Approach 2: Revamping the Value Chain
- Simplify product designs
- Offer basic service
- Shift to a simpler technological process
- Find ways to bypass high cost raw materials
- Use Direct-to-End user sales/marketing approaches
- Relocated facilities closer to supply chain nodes
- Redevelop core business processes
- Use computer tech to streamline steps, process, and cut out cost-producing activities
Characteristics of Low-Cost Providers
- Cost conscious corporate culture
- Employee participation in cost-control
- Ongoing benchmarking efforts
- Intensive scrutiny of budgets
- Continuous cost improvement
Successful Low-Cost Producers
Champion frugality, but wisely and aggressively invest in cost-saving improvements
What managers need to achieve to establish low-cost leadership
- Identify cost drivers: focus on cost-creating activities
- Use Knowledge about costs drivers to ensure lower production each year
- Reengineer how activities are performed and coordinated– eliminate unnecessary work steps
- Be creative in cutting some activities of value chain system
Low-Cost Leadership: Competitive Strengths
- Better positioned than RIVAL COMPETITORS to compete offensively on basis of price
- Low-cost provides some protection from bargaining leverage of powerful BUYERS
- Low-cost provides some protection from bargaining leverage of powerful SUPPLIERS
- Low-cost provider’s pricing power acts as a significant barrier for POTENTIAL ENTRANTS
- Low cost puts a company in position to use low price as a defense against SUBSTITUTES
Low-Cost Strategy: Works best when:
- Price Competition is consistent
- Product Standardization
- Product Availability
- Product use congruency by consumers
- Buyers incur low switching costs
- Buyers are large and have significant bargaining powers
Low-Cost Strategies: Pitfalls
- Overly Aggressive in cutting price (revenue erosion of lower price is not offset by gains in sales volume– profits go down, not up)
- Low cost methods are easily imitated by rivals
- Becoming too fixated on reducing costs
- Ignoring: buyer interest, declining buyer sensitivity to price, changes in how product is use by consumers
- technological breakthroughs open up cost reductions for rivals too
