Chapter 4 Flashcards
Two generic business level strategies
Cost Leadership
Product Differentiation
Cost Leadership
Generates economic value by having lower cost structure than competitors
Product Differentiation
generates economic value by offering a product that customers prefer over a competitors’ product
Sources of cost advantages
Economies of Scale Diseconomies of Scale Learning Curve Economies Differential Low-Cost Access to Productive Inputs Technology Independent of Scale Policy Choices
Sources of cost advantages
Economies of Scale
when the average cost per unit falls as quantity increase until the minimum efficient scale is reached
Sources of cost advantages
Diseconomies of Scale
occur when firms become too large and bureaucratic
Sources of cost advantages
Learning Curve Economies
A firm gets more efficient at a process with experience, and the more complicated the greater the experience advantage
Sources of cost advantages
Differential Low-Cost Access to Productive Inputs
Being in the right place at the right time. Being first into a market
Sources of cost advantages
Technology Independent of Scale
Advantage accrues to the owner of the technology
Sources of cost advantages
Policy Choices
Firms choose how they will serve the market
Impact of Cost Advantage on Porter’s 5 forces
Being a cost leader lowers all threats
Impact of Cost Advantage on Porter’s 5 forces
Entry
Increases capital requirements for entrants
Impact of Cost Advantage on Porter’s 5 forces
Rivalry
Competitors rationally avoid price competition
Impact of Cost Advantage on Porter’s 5 forces
Substitutes
Limits attractiveness of substitutes
Impact of Cost Advantage on Porter’s 5 forces
Suppliers
Cost leaders are very important to the supplier
