Competitive Advantage Flashcards
How can profitability differ?
Between and within industries
When does a firm have a competitive advantage?
When it earns a higher rate of econ profit than average rate of other firms in the same market
Outline cost advantage
Similar product produced at a lower cost
Outline differentiation advantage
Unique product at a premium price
How does a cost leadership strategy work?
Creates more value than its competitors by offering products that have a lower cost than its rivals
List 3 ways to achieve cost leadership and explain
1 - Benefit parity - same qual, lower cost
2 - Benefit proximity - Lower qual, lower cost
3 - Offer a qualitatively different product - advantage of redefining product
How does a benefit (differentiation) leadership strategy work?
Creates more value than its competitors by offering products that have a higher benefit than its rivals
List 3 ways to achieve benefit (differentiation) leadership and explain
1 - Cost parity - higher qual, same cost
2 - Cost proximity - higher qual, slightly higher cost
3 - Offer substantially higher benefits and cost
How does a horizontal differentiation strategy work?
Same quality, different mix of characteristics. Consumers select price+product+quantity bundle based on their preferences
Did Porter think a firm achieve both cost and benefit leadership simultaneously?
No - said would be “stuck in the middle” and would fail to achieve either advantage
What is current thinking about both cost and benefit leadership simultaneously?
Can be done, but have to follow one strategy first, and then the other
List some tangible sources of differentiation advantage?
1 - Observable product differences
2 - Appearance
3 - Performance
4 - Services and Customer Care
List some intangible sources of differentiation advantage?
Unobservable and subjective product differences that appeal to customers’ social, emotional, psychological and aesthetic considerations
How do you formulate a differentiation strategy?
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
List the 6 stages of value chain analysis for cost advantage
- Disaggregate firm into separate activities
- Establish relative importance of activities in total cost of product
- Compare costs by activity
- Identify cost drivers
- Identify linkages
- Identify Opportunities for reducing costs
List the 6 stages of value chain analysis for differentiation advantage
- Construct a value chain for the firm and the customer
- Identify the drivers of uniqueness in each activity
- Select the most promising differentiation variables for the firm
- Identify linkages between the value chain of the firm and that of the customer
What is the purpose of segmentation analysis?
To identify attractive segments, to select strategies for different segments and to determine how many segments to serve
In an industry segmentation matrix, how can an industry be characterised?
1 - Varieties of Products
2 - Types of Customers
3 - Geographic Location
Outline the 4 stages of applying segmentation analysis
1 - Identify Key Segmentation Variables and construct segmentation matrix
2 - Analyse Segment Attractiveness
3 - Identify Segment’s Key Success Factors
4 - Select Segment Scope
When is a cost advantage best?
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
When is a differentiation advantage best?
1 - Economies of scale / learning have been exploited.
2 - Customer is value conscious
3 - Experience good.
Outline horizontal differentiation
If when prices are equal some customers prefer one product and other customers prefer the other
Differ in characteristics
Outline vertical differentiation
If when prices are equal all customers prefer the same product
Differ in quality
Outline weak horizontal differentiation
When product is simple and only a few easily ranked attributes matter
High price elasticity of demand
Outline strong horizontal differentiation
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
What are the two main pricing strategies?
Share
Margin
Which strategy should a firm chose of they have: a high PED and a cost advantage
Share strategy
Undercut rivals
Which strategy should a firm chose of they have: a high PED and a diff advantage
Share strategy
Maintain price parity
Which strategy should a firm chose of they have: a low PED and a cost advantage
Margin strategy
Maintain price parity
Which strategy should a firm chose of they have: a high PED and a diff advantage
Margin strategy
Charge premium price
When is it easiest to establish and maintain a competitive advantage?
When industry is characterised by:
1 - Information Complexity
2 - Opportunities for Deterrence and Pre-emption
3 - Difficulties of resources acquisition
What are the 4 distinctive barriers to imitation?
1 - Learning Curve
2 - Reputation and Buyer Uncertainty
3 - Buyer Switching Costs
4 - Network Effects
In a tech industry, the extent to which innovators are able to appropriate the value of their innovation depends on….
1 - Property rights
2 - Tacitness and Complexity of the Technology
3 - Lead-Time
4 - Complementary Resources
