Ch. 6 Flashcards
Def: Business Level Strategy
the goal-directed actions managers take in their quest for competitive advantage when competing in a single product market
The four questions to ask when formulating a business level strategy:
- who will we serve?
- what are our customer’s needs and wishes?
- Why do we want to satisfy them?
- How will we satisfy customer needs?
Competitive advantage is shaped by both _________ and ______ effects.
Competitive advantage is shaped by both industry and firm effects
Def: Strategic Position
strategic profile based on value creation and cost
- determined by a firm’s business level strategy
Def: Strategic Trade-offs
Choices between a cost or value position. Such choices are necessary because higher value creation tends to generate a higher cost.
Def: Differentiation strategy
Generic business strategy that seeks to create higher value for customers than the value that competitors create; unique features = higher price
Def: Cost-leadership strategy
generic business strategy that seeks to create the same or similar value for customers but at a lower cost
Def: Scope of competition
The size - narrow or broad - of the market in which a firm chooses to compete
Def: Focused cost-leadership strategy
same as the cost-leadership strategy except with a narrow focus on a niche market
Def: Focused differentiation strategy
same as the differentiation strategy except with a narrow focus on a niche market
Def: Economies of scope
savings that come from producing two or more outputs at less cost than producing each output individually, despite using the same resources and technology
Def: Economies of scale
decreases in cost per unit as output increases
What are the three main value drivers?
- Product features
- Customer Service
- complements
Value drivers only contribute to the competitive advantage when:
the change in value exceeds the change in cost
Def: Differentiation Parity
creating the same value as your competitor
The 4 main cost drivers managers must manage to keep costs at a minimum:
- Cost of input factors
- Economies of scale
- Learning-curve effects
- Experience-curve effects
Economies of scale allow a firm to: (3 things)
- spread their fixed costs over a larger output
- employ specialized systems and equipment
- take advantage of certain physical properties
T or F: Larger outputs allow firms to spread their fixed costs over more units
TRUE
Def: Minimum efficient scale (MES)
output range needed to bring down the cost per unit as much as possible, allowing a firm to stake out the lowest-cost position that is achievable through economies of scale
Def: Diseconomies of scale
increase in cost per unit when output increases
Which model helps manager to choose business strategies to protect themselves against industry forces that drive down profitability?
The five forces model
Def: Blue Ocean Strategy
Business level strategy that successfully combines differentiation and cost-leadership activities using value innovation to reconcile the inherent tradeoffs ex. Trader Joe’s
Def: value innovation
The simultaneous pursuit of differentiation and low cost in a way that creates a leap in value for both the firm and the consumers; considered a cornerstone of blue ocean strategy
Value Innovation - Lowering Costs
- eliminate factors not in use
2. reduce aspects that should be below industry standard
Value Innovation - Increasing Perceived Consumer Benefits
- Raise aspects above industry standard
4. create new aspects that the industry has never offered
What happens when a blue ocean strategy goes bad?
You get stuck in the midle
Def: Strategy Canvas
graphical depiction of a company’s relative performance vis-a-vis its competitors across the industry’s key success factors
