Ch. 6

Question 1

Def: Business Level Strategy

Answer 1

the goal-directed actions managers take in their quest for competitive advantage when competing in a single product market

Question 2

The four questions to ask when formulating a business level strategy:

Answer 2

1. who will we serve?
2. what are our customer’s needs and wishes?
3. Why do we want to satisfy them?
4. How will we satisfy customer needs?

Question 3

Competitive advantage is shaped by both _________ and ______ effects.

Answer 3

Competitive advantage is shaped by both industry and firm effects

Question 4

Def: Strategic Position

Answer 4

strategic profile based on value creation and cost

- determined by a firm’s business level strategy

Question 5

Def: Strategic Trade-offs

Answer 5

Choices between a cost or value position. Such choices are necessary because higher value creation tends to generate a higher cost.

Question 6

Def: Differentiation strategy

Answer 6

Generic business strategy that seeks to create higher value for customers than the value that competitors create; unique features = higher price

Question 7

Def: Cost-leadership strategy

Answer 7

generic business strategy that seeks to create the same or similar value for customers but at a lower cost

Question 8

Def: Scope of competition

Answer 8

The size - narrow or broad - of the market in which a firm chooses to compete

Question 9

Def: Focused cost-leadership strategy

Answer 9

same as the cost-leadership strategy except with a narrow focus on a niche market

Question 10

Def: Focused differentiation strategy

Answer 10

same as the differentiation strategy except with a narrow focus on a niche market

Question 11

Def: Economies of scope

Answer 11

savings that come from producing two or more outputs at less cost than producing each output individually, despite using the same resources and technology

Question 12

Def: Economies of scale

Answer 12

decreases in cost per unit as output increases

Question 13

What are the three main value drivers?

Answer 13

1. Product features
2. Customer Service
3. complements

Question 14

Value drivers only contribute to the competitive advantage when:

Answer 14

the change in value exceeds the change in cost

Question 15

Def: Differentiation Parity

Answer 15

creating the same value as your competitor

Question 16

The 4 main cost drivers managers must manage to keep costs at a minimum:

Answer 16

1. Cost of input factors
2. Economies of scale
3. Learning-curve effects
4. Experience-curve effects

Question 17

Economies of scale allow a firm to: (3 things)

Answer 17

1. spread their fixed costs over a larger output
2. employ specialized systems and equipment
3. take advantage of certain physical properties

Question 18

T or F: Larger outputs allow firms to spread their fixed costs over more units

Answer 18

TRUE

Question 19

Def: Minimum efficient scale (MES)

Answer 19

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

Question 20

Def: Diseconomies of scale

Answer 20

increase in cost per unit when output increases

Question 21

Which model helps manager to choose business strategies to protect themselves against industry forces that drive down profitability?

Answer 21

The five forces model

Question 22

Def: Blue Ocean Strategy

Answer 22

Business level strategy that successfully combines differentiation and cost-leadership activities using value innovation to reconcile the inherent tradeoffs ex. Trader Joe’s

Question 23

Def: value innovation

Answer 23

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

Question 24

Value Innovation - Lowering Costs

Answer 24

1. eliminate factors not in use

2. reduce aspects that should be below industry standard

Question 25

Value Innovation - Increasing Perceived Consumer Benefits

Answer 25

3. Raise aspects above industry standard

4. create new aspects that the industry has never offered

Question 26

What happens when a blue ocean strategy goes bad?

Answer 26

You get stuck in the midle

Question 27

Def: Strategy Canvas

Answer 27

graphical depiction of a company’s relative performance vis-a-vis its competitors across the industry’s key success factors