Chapter 5 Flashcards
What is the business level strategy about?
- Whom a company wants to serve
- What customer needs
- Desires of the company to satisfy
- how the company decides to satisfy those needs and desires
What are the two basic ways a company chooses how to compete in a market
- Lower costs
- Differentiate product offered by competition to create more value
What are the advantages of low costs
- Enables company to make a profit at price points where rivals are losing money
- Allow company to gain market share
What is differentiation
Differing itself from rivals by offering things that are hard to match
How do companies differentiate themselves
- Superior reliability
- Better designs
- Superior functions and features
- Better point of sale service
- Better after sales service and support
- Better branding
What are the advantages of differentiation
- Charge at a premium price
- Help grow demand and capture market share from its rivals
What is the trade off
Managers must make a choice between choosing basic ways of attaining a competitive advantage
What does successful differentiation give
Options to managers to raise prices and cover any incremental increase in costs
What is efficiency frontier
Shows different positions companies can adopt differentiation and low costs
Why does the efficiency frontier have a convex shape
Diminishing returns
What is diminishing returns
Company has significant differentiation built into its product, increasing more by a small amount requires significant additional costs
What is market segmentation
Refers to the process of subdividing the market into clearly identifiable groups of customers with similar needs, desires and demand characteristics
What type of customers are within the market segments
Relatively homogenous and differ in important ways from customers in other segments of the market
What are the three approaches to market segmentation
- Standardization strategy
- Segmentation strategy
- Focus strategy
Which approach is associated with lower costs
Standardization strategy
How can companies successfully implement a business level strategy and reach the efficiency frontier
- Must pursue right functional level strategies and be organized
- Business level strategy, functional level strategy and organizational arrangement must be all in alignment
What is standardization strategy
Targets the average customer in that market
What is segmentation strategy
Customize its product offering to different segments, producing multiple offers
What is focus strategy
Target limited number of market segments or just one and become the very best at serving that particular segment
What are the costs and revenues of standardization strategy
- Associated with lower costs
- Involves producing basic offerings and trying to attain economies of scale by achieving high volumes of sales
What are the costs of segmentation strategy
- Company sells less of each offering making it harder to achieve economies of scale
- costs of production and delivery because products are aimed for higher income segments
How can customization drive up costs
- Company may sell less of offering
- Products may require more functions and features
What is a focus strategy for higher segments
Higher income = higher costs
What is the focus strategy for lower segments
More basic offers that is inexpensive to produce and delivery
What is broad low cost strategy
Company concentrates on lowering costs so that it can lower prices and make profit
What is broad differentiation strategy
Company tries to differentiate its products in some way
What is Focus low cost strategy
Company that targets a few segments or just one is pursuing a focus or niche strategy
What is focus differentiation strategy
Company that tries to customize its product to the needs of a particular segment by adding features and functions
What is the goal of companies to ward off competition
Brand loyalty
Who is the originator of the generic business level strategy
Michael Porter
What is differentiation according to Michael Porter
Raises costs and makes it impossible to attain the low cost position in the industry
Why must companies have an alignment between business level, functional and organizational strategy
So that structure, control systems, incentive systems and culture are emphasized and reward employee behaviors are consistent with higher productivity and greater efficiency
How can low costs make it hard for rivals to enter its market and be a substitute
Creates a cost that is hard for other businesses to match, protect a company against a substitute against goods or services
What protects successful differentiators from competitive forces
- Brand loyalty
- Non price factors are important to its customers
- Be protected from substitutes
What do low cost positions of functional level strategies result to
Superior efficiency and superior product reliability
Why must low cost firms be organized
Structure, control, incentives systems, culture and employees are consistent with higher productivity and greater efficiency
What does superior quality bring
Emphasis on innovation, customer responsiveness, reliability and excellence
What specific functional level strategies improve differentiation
- Customization and marketing mix
- Design high quality products that increase reliability
- Well developed customer care function
- Marketing efforts focused on brand building and perceived differentiation
- Hiring employees that align with the image of the company
What is value innovation
Figures out ways to offer more value through differentiation at a lower cost
What is blue ocean
Characterization of the open market space where a company can chart its course
What is eliminating in searching for a blue ocean
Look for eliminating factors that rivals take for granted and reduce costs
What is reducing in searching for a blue ocean
Look for factors that should be reduced well below the industry standard to lower costs
What is raise in searching for blue ocean
Look for factors that should be raised above industry standard to increase value
What is create in searching for blue ocean
Look for factors that can be created that rivals don’t offer and increase value
What do companies believe in blue ocean strategy
- To be a wide open market space where a company can chart its own course
- Present opportunities for untapped revenues
What are some strategies surrounding blue ocean strategy
- Create uncontested market spaces
- Make the competition irrelevant
- Focus non customers
- Create and capture new demand
What is value innovation
Describes what happens when innovation is pushed out the efficiency frontier in an industry
What are the advantages of successful value innovation
- Makes it hard for competitors to catch up
- Result to sustained competitive advantage
Why can’t low cost and differentiation strategies may not work together
Different ways of competing
