Chapter 9 - strategic positioning for competitive advantage Flashcards
competitive advantage
when a firm earns a higher rate of economic profits than the average rate of economic profit of other firms competing within the same market
consumer surplus
an economic measurement that happens when the price that consumers pay for a product or service is less than the price they are willing to pay for it
willingness-to-pay (WTP)
the maximum amount of money a consumer would sacrifice in exchange for a product or service
value-added analysis
the difference between the price of product/service and the cost of producing it. the price is determined by what consumers are willing to pay based on their perceived value
consumer surplus (formula)
consumer surplus = benefit - price
consumer surplus parity
when firms are offering a consumer the same amount of consumer surplus
value creation
economic value is created when a producer combines inputs such as labor, capital, raw materials, purchased components to make a product whose perceived benefit B exceeds the cost C incurred in making the product
value created (formula)
value created = B - C
consonance analysis
critically evaluating how the fundamental economic foundations of the business are likely to evolve to project the firm’s prospects for creating value
value chain
often used to name the vertical chain as it depicts the firm as a collection of value-creating activities
value chain activities
- firm infrastructure
- HRM
- technology development
- procurement
- inbound logistics
- production operations
- outbound logistics
- marketing and sales
- service
resources
firm-specific assets such as patents, trademarks, brand-name reputation, installed base, organizational culture, …
capabilities
activities that a firm does especially well compared with other firms
common key characteristics of capabilities
- valuable across multiple products or markets
- embedded in organizational routines
- tacit
generic strategies
- cost leadership
- benefit leadership
- focus
benefit parity
making products with the same B but at a lower C than the rivals
benefit proximity
offering a B that is not much less than competitors’
offer a product that is qualitatively different form that of its rivals
redefining the product to yield substantial differences in benefits or costs relative to how the product is traditionally defined
cost parity
making products with the same C but at a higher B than its rivals
cost proximity
entails a C that is not too much higher than competitors
both is superior
offer substantially higher B and C
stuck in the middle
a firm that pursues elements of cost leadership and benefit leadership at the same time and in the process achieves neither
cost drivers independent of firm size, scope, or cumulative experience
- input prices
- economies of density
- production environment
- production process efficiencies
- avoiding expenses that competitors incur
- effects of government policies
cost drivers related to organization of the transactions
- threat of holdup
- leakage of private information
- coordination is complicated
benefit drivers
- physical characteristics of the product
- the quantity and characteristics of the service/complementary goods offered
- characteristics associated with the sale or delivery of the good
- characteristics shaping consumers’ perceptions/expectation of products’ performance/cost to use
- the subjective image of the product
activity cost analysis
make reasonable educated guesses about a firm’s cost position vis á vis the competition
reservation price method
the perceived benefit B represents a consumer’s reservation price. one approach to estimate B is to simply ask consumers the highest price they would pay
attribute-rating method
technique for estimating benefit drivers directly from survey responses and then calculating overall benefits on the basis of attribute scores
- consumers are asked to distribute a given fixed number of points to allocate among each product
- each attribute is then assigned an “importance weight”
- determine relative perceived benefits by calculating the weighted average of the ratings
- weighted scores can be divided by “B/C ratios” –> products with high B/C ratios will generally enjoy a superior strategic position
hedonic pricing analysis
requires multiple regression analysis to estimate the impact of product attributes on a product’s (actual) price
hedonism
the pleasure/happiness a consumer derives from a good
conjoint analysis
uses market prices for existing combination of product attributes
- inadequate for studying the value of new futures
- estimates relative benefits of different product attributes –> estimating these benefits for hypothetical combinations of attributes
- consumers rank a product with different features at different prices –> regression
- consumers state how much they are willing to pay for different combinations of features –> treat responses as if they were actual market prices (but they are actually hypothetical)
porter’s industry segmentation matrix
shows that any industry can be characterized by two dimensions:
1) the varieties of products offered by firms that compete in the industry
2) the different types of customers that purchase those products
broad coverage strategy
serve all customer groups in the market by offering a full line of related products
focus strategy
offers a narrow set of product varieties or serves as narrow set of customers or both
three focus strategies
- customer specialization focus
- product specialization focus
- geographic specialization focus
advantages focus strategies
- they can insulate the focusing firm from competition
- in some segments, customer demand may only be large enough for 1-2 firms to operate profitably
- a firm may be far more profitable as a focused seller in a low-demand segment than as one of several competitors in high-demand segments
