Chapter 9 - strategic positioning for competitive advantage

Question 1

competitive advantage

Answer 1

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

Question 2

consumer surplus

Answer 2

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

Question 3

willingness-to-pay (WTP)

Answer 3

the maximum amount of money a consumer would sacrifice in exchange for a product or service

Question 4

value-added analysis

Answer 4

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

Question 5

consumer surplus (formula)

Answer 5

consumer surplus = benefit - price

Question 6

consumer surplus parity

Answer 6

when firms are offering a consumer the same amount of consumer surplus

Question 7

value creation

Answer 7

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

Question 8

value created (formula)

Answer 8

value created = B - C

Question 9

consonance analysis

Answer 9

critically evaluating how the fundamental economic foundations of the business are likely to evolve to project the firm’s prospects for creating value

Question 10

value chain

Answer 10

often used to name the vertical chain as it depicts the firm as a collection of value-creating activities

Question 11

value chain activities

Answer 11

• firm infrastructure
• HRM
• technology development
• procurement
• inbound logistics
• production operations
• outbound logistics
• marketing and sales
• service

Question 12

resources

Answer 12

firm-specific assets such as patents, trademarks, brand-name reputation, installed base, organizational culture, …

Question 13

capabilities

Answer 13

activities that a firm does especially well compared with other firms

Question 14

common key characteristics of capabilities

Answer 14

• valuable across multiple products or markets
• embedded in organizational routines
• tacit

Question 15

generic strategies

Answer 15

• cost leadership
• benefit leadership
• focus

Question 16

benefit parity

Answer 16

making products with the same B but at a lower C than the rivals

Question 17

benefit proximity

Answer 17

offering a B that is not much less than competitors’

Question 18

offer a product that is qualitatively different form that of its rivals

Answer 18

redefining the product to yield substantial differences in benefits or costs relative to how the product is traditionally defined

Question 19

cost parity

Answer 19

making products with the same C but at a higher B than its rivals

Question 20

cost proximity

Answer 20

entails a C that is not too much higher than competitors

Question 21

both is superior

Answer 21

offer substantially higher B and C

Question 22

stuck in the middle

Answer 22

a firm that pursues elements of cost leadership and benefit leadership at the same time and in the process achieves neither

Question 23

cost drivers independent of firm size, scope, or cumulative experience

Answer 23

• input prices
• economies of density
• production environment
• production process efficiencies
• avoiding expenses that competitors incur
• effects of government policies

Question 24

cost drivers related to organization of the transactions

Answer 24

• threat of holdup
• leakage of private information
• coordination is complicated

Question 25

benefit drivers

Answer 25

• 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

Question 26

activity cost analysis

Answer 26

make reasonable educated guesses about a firm’s cost position vis á vis the competition

Question 27

reservation price method

Answer 27

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

Question 28

attribute-rating method

Answer 28

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

Question 29

hedonic pricing analysis

Answer 29

requires multiple regression analysis to estimate the impact of product attributes on a product’s (actual) price

Question 30

hedonism

Answer 30

the pleasure/happiness a consumer derives from a good

Question 31

conjoint analysis

Answer 31

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)

Question 32

porter’s industry segmentation matrix

Answer 32

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

Question 33

broad coverage strategy

Answer 33

serve all customer groups in the market by offering a full line of related products

Question 34

focus strategy

Answer 34

offers a narrow set of product varieties or serves as narrow set of customers or both

Question 35

three focus strategies

Answer 35

• customer specialization focus
• product specialization focus
• geographic specialization focus

Question 36

advantages focus strategies

Answer 36

• 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