Competitive Advantage

Question 1

How can profitability differ?

Answer 1

Between and within industries

Question 2

When does a firm have a competitive advantage?

Answer 2

When it earns a higher rate of econ profit than average rate of other firms in the same market

Question 3

Outline cost advantage

Answer 3

Similar product produced at a lower cost

Question 4

Outline differentiation advantage

Answer 4

Unique product at a premium price

Question 5

How does a cost leadership strategy work?

Answer 5

Creates more value than its competitors by offering products that have a lower cost than its rivals

Question 6

List 3 ways to achieve cost leadership and explain

Answer 6

1 - Benefit parity - same qual, lower cost

2 - Benefit proximity - Lower qual, lower cost

3 - Offer a qualitatively different product - advantage of redefining product

Question 7

How does a benefit (differentiation) leadership strategy work?

Answer 7

Creates more value than its competitors by offering products that have a higher benefit than its rivals

Question 8

List 3 ways to achieve benefit (differentiation) leadership and explain

Answer 8

1 - Cost parity - higher qual, same cost

2 - Cost proximity - higher qual, slightly higher cost

3 - Offer substantially higher benefits and cost

Question 9

How does a horizontal differentiation strategy work?

Answer 9

Same quality, different mix of characteristics. Consumers select price+product+quantity bundle based on their preferences

Question 10

Did Porter think a firm achieve both cost and benefit leadership simultaneously?

Answer 10

No - said would be “stuck in the middle” and would fail to achieve either advantage

Question 11

What is current thinking about both cost and benefit leadership simultaneously?

Answer 11

Can be done, but have to follow one strategy first, and then the other

Question 12

List some tangible sources of differentiation advantage?

Answer 12

1 - Observable product differences
2 - Appearance
3 - Performance
4 - Services and Customer Care

Question 13

List some intangible sources of differentiation advantage?

Answer 13

Unobservable and subjective product differences that appeal to customers’ social, emotional, psychological and aesthetic considerations

Question 14

How do you formulate a differentiation strategy?

Answer 14

1 - Select product positioning in relation to product attributes
2 - Select target customer group
3 - Ensure customer/product compatibility
4 - Evaluate costs and benefits of differentiation

Question 15

List the 6 stages of value chain analysis for cost advantage

Answer 15

1. Disaggregate firm into separate activities
2. Establish relative importance of activities in total cost of product
3. Compare costs by activity
4. Identify cost drivers
5. Identify linkages
6. Identify Opportunities for reducing costs

Question 16

List the 6 stages of value chain analysis for differentiation advantage

Answer 16

1. Construct a value chain for the firm and the customer
2. Identify the drivers of uniqueness in each activity
3. Select the most promising differentiation variables for the firm
4. Identify linkages between the value chain of the firm and that of the customer

Question 17

What is the purpose of segmentation analysis?

Answer 17

To identify attractive segments, to select strategies for different segments and to determine how many segments to serve

Question 18

In an industry segmentation matrix, how can an industry be characterised?

Answer 18

1 - Varieties of Products
2 - Types of Customers
3 - Geographic Location

Question 19

Outline the 4 stages of applying segmentation analysis

Answer 19

1 - Identify Key Segmentation Variables and construct segmentation matrix
2 - Analyse Segment Attractiveness
3 - Identify Segment’s Key Success Factors
4 - Select Segment Scope

Question 20

When is a cost advantage best?

Answer 20

1 - Economies of scale / learning exist and other firms not good at exploiting them.

2 - Product does not lend itself to benefit enhancement.

3 - Consumers are very price sensitive.

4 - Search good

Question 21

When is a differentiation advantage best?

Answer 21

1 - Economies of scale / learning have been exploited.
2 - Customer is value conscious
3 - Experience good.

Question 22

Outline horizontal differentiation

Answer 22

If when prices are equal some customers prefer one product and other customers prefer the other

Differ in characteristics

Question 23

Outline vertical differentiation

Answer 23

If when prices are equal all customers prefer the same product

Differ in quality

Question 24

Outline weak horizontal differentiation

Answer 24

When product is simple and only a few easily ranked attributes matter

High price elasticity of demand

Question 25

Outline strong horizontal differentiation

Answer 25

When are many product attributes that customers weigh in assessing overall benefit and when customers disagree about desirability of attributes

Low price elasticity of demand

Question 26

What are the two main pricing strategies?

Answer 26

Share

Margin

Question 27

Which strategy should a firm chose of they have: a high PED and a cost advantage

Answer 27

Share strategy

Undercut rivals

Question 28

Which strategy should a firm chose of they have: a high PED and a diff advantage

Answer 28

Share strategy

Maintain price parity

Question 29

Which strategy should a firm chose of they have: a low PED and a cost advantage

Answer 29

Margin strategy

Maintain price parity

Question 30

Which strategy should a firm chose of they have: a high PED and a diff advantage

Answer 30

Margin strategy

Charge premium price

Question 31

When is it easiest to establish and maintain a competitive advantage?

Answer 31

When industry is characterised by:

1 - Information Complexity
2 - Opportunities for Deterrence and Pre-emption
3 - Difficulties of resources acquisition

Question 32

What are the 4 distinctive barriers to imitation?

Answer 32

1 - Learning Curve
2 - Reputation and Buyer Uncertainty
3 - Buyer Switching Costs
4 - Network Effects

Question 33

In a tech industry, the extent to which innovators are able to appropriate the value of their innovation depends on….

Answer 33

1 - Property rights
2 - Tacitness and Complexity of the Technology
3 - Lead-Time
4 - Complementary Resources