ch 6 Flashcards
What are Business-Level Strategies?
Definition: Strategies focused on how a firm competes within a specific market.
Two Key Strategies:
Cost Leadership – Competing by being the lowest-cost producer.
Product Differentiation – Competing by offering unique products that customers value more than competitors’ offerings
What is a Cost Leadership Strategy?
Objective: Generate economic value by having lower costs than competitors.
Examples: Walmart and Superstore.
Risks: Competitors may copy cost-saving strategies, or new technology may reduce costs industry-wide
What are the Sources of Cost Advantage?
Economies of Scale: Lower cost per unit as production increases.
Learning Curve Economies: Processes become more efficient with experience.
Differential Low-Cost Access to Inputs: Being in the right place at the right time, securing key inputs first.
Technology Independent of Scale: Small firms using advanced tech to reduce costs.
Policy Choices: Strategic decisions to offer only low-cost services/products
What is Product Differentiation Strategy?
Objective: Increase the perceived value of the product compared to competitors.
Examples: Whole Foods, Apple.
Benefit: Allows firms to charge a premium price and generate higher profits.
Risks: Competitors may quickly imitate unique features
What are the two main types of business-level strategies?
Cost Leadership and Product Differentiation.
What are the primary sources of cost advantage in a Cost Leadership strategy?
Economies of scale, learning curve economies, differential access to inputs, technology, and policy choices.
How do economies of scale contribute to cost leadership?
By reducing average costs as production volume increases, up to a point of minimum efficient scale.
Why is it challenging to imitate a cost leadership strategy?
Path dependency, protected technology, and social complexity can make imitation costly and difficult.
Can a firm pursue both cost leadership and product differentiation simultaneously?
Yes, some firms like Toyota achieve both by leveraging differentiation strategies that also reduce costs.
How does product differentiation create a competitive advantage?
By increasing customer preferences, allowing firms to charge premium prices or gain higher market share.
What is a key risk of being “stuck in the middle”?
Firms that do not excel in either cost leadership or differentiation risk losing competitive advantage in both areas.
