Chapter 6: Competitive Position and Sources of Advantage Flashcards
What are the two general kinds of advantages?
- Cost advantage
- Differentiation advantage
competitive advantage results in _________________________ based on a customer’s preference for performance benefits, the cost of the purchase, and the ease of the purchase.
some level of superior customer value
cost advantage
able to create superior customer value even with products that have average performance benefits if the businesses offer the products at below-average cost
A significantly lower cost position from which to create lower prices while still achieving desirable profit margins.
differentiation advantage
able to create superior customer value with above-average performance benefits, even at above-average prices
A meaningful differentiation that creates desired per- formance benefits at a level superior to those of competitors.
variable cost advantage
– Lower VC per unit
– Volume is the key
– Scale, Scope and Learning Effects
marketing cost advantage
– Advantages from product line extensions
– Marketing cost scope effect
what are the three kinds of cost advantage?
- variable cost advantage
- marketing cost advantage
- operating cost advantage
what are the three kinds of differentiation advnatages
- product advantage
- service advantage
- reputation advantage
what is the third kind of advantage? (other than cost and differentiation)
marketing
marketing advantage
A market position and marketing effort that dominates the competition in brand recognition, product line, and channels of distribution
describe scale effect
A larger unit volume allows for production and purchasing economies that lower the per-unit manufacturing cost of a product, thereby creating a scale effect
–> e.g. By making large volume purchases, Wal-Mart has been able to negotiate a lower cost of goods. The same scale effect occurs for a manufacturer who doubles production capacity
describe scope effect
when a business adds products to its product line that have similar manu- facturing processes and that are made of the same purchased materials as its other prod- ucts, the business can lower the average unit cost of all products.
e.g. For Honda, the cost of ignition switches is lower than for some other manufacturers because the same ignition switch components are used in cars, motorcycles, lawn mow- ers, all-terrain vehicles, snowblowers, snowmobiles, jet skis, and generators.
describe learning effects
as a business builds more of the same product, there is a greater opportunity for learning effects. These nonscale, nonscope effects contribute to lower costs through process improvements that are the result of learning.
describe marketing cost scope effect
could benefit from marketing cost efficiencies derived from product line extensions, which is another way to gain a cost advantage
for example, it takes a certain number of salespeople to adequately cover a target market. As the sales force is given more products to sell to the same customers, a marketing cost scope effect is created
Another area of marketing cost advantage is derived from the advertising cost effi- ciency of a brand extension strategy
e.g extensive product line offered by Campbell’s Soup. Each time an individual soup is advertised, the ad reinforces top-of-the-mind awareness of Campbell’s Soup brand and other soups in the product line
operating cost advantage
e,g. McDonald’s has been able to cut construction costs of new restaurants by 50 percent since 1990 by using standardized building designs. Because the building is an asset that is depreciated over time, this source of operating expense is drastically lower than it would be if each building had a unique design
describe product advantage
features, performance, reliability etc.
