Competitive advantage & value creation

Question 1

Hoe definieer je winst voor de producent?

Answer 1

(prijs die de consument betaalt) - (kost om de grondstof om te zetten in een afgewerkt product

Question 2

Wat is de theoritische definitie van consumentensurplus? (kost/consument,…)

Answer 2

Consumentensurplus:
gepercipieerde waarde (door de klant) MIN prijs die de consument betaalt

Question 3

Wat is kost?

Answer 3

Kost om de grondstof om te zetten in een afgewerkt product

Question 4

Definieer prijs

Answer 4

price consumers pay for the finished good

-> prijs die de consument betaalt

Question 5

Definieer perceived benefit

Answer 5

= value consumers derive from the finished good

–> wat de klant vindt dat het product waard is

Question 6

Wat is gecreëerde waarde?

Answer 6

perceived benefit MIN cost

–> wat de klant vindt dat het product waard is MIN kost om de grondstof om te zetten in een afgewerkt product

Question 7

Wanneer spreek je van superieure waarde? (superior value)

Answer 7

Superior customer value IF:

• real advantages product/service > expected advantages
• Advantages own product/service > advantages product/service competitors

Question 8

What is a competitive advantage?

Answer 8

When two or more firms compete within the same market, one firm possesses a competitive advantage over its rivals when it earns (or has the potential to earn) a persistently higher rate of profit

Critical note:
Firm may forgo current profit in favor of investments, to be able to attain a competitive advantage in the future!

Question 9

How does a competitive advantage emerge? Discuss the internal sources of change

Answer 9

Some firms have greater creative and innovative capability (internal change, irrespective of external sources of change)

strategic innovation = new approaches to doing business, including new business models

examples:
- new industries => the creation of a new market
- new customer segments for existing products

Question 10

How does a competitive advantage emerge? Discuss the external sources of change

Answer 10

• resource heterogeneity among firms means differential impact
  (example: tobacco industry, similar resources & capabilities. Competitive advantages tend to be small)
• some firms are faster and more effective in exploiting change
  –> Schumpeter’s entrepreneurship

Question 11

What is Schumpeter’s Entrepreneurship?

Answer 11

The ability to act on the opportunity that innovations and discoveries create

=> seizing opportunities is the essence of entrepreneurship

Question 12

What are the 5 types of competitive advantage?

Answer 12

• Differentiation strategy
• Cost leadership
• Focus differentiation (specialization)
• focus cost leadership
• stuck in the middle

=> the strategy is intertwined with the whole company system (structure/ processes/ culture/…)

Question 13

What is the differentiation strategy?

Answer 13

Unique selling proposition/ effectiveness
+
total industry

Question 14

What is the focus differentiation (specialization) strategy?

Answer 14

Unique selling proposition/ effectiveness
+
Niche

Question 15

What is the cost leadership strategy?

Answer 15

Low cost/ efficiency + total industry

Question 16

What is the Focus cost leadership strategy?

Answer 16

low cost/efficiency
+
niche

Question 17

List some key elements of the basis of cost leadership

Answer 17

• economies of scale
• design for easy manufacturing
• control on overhead cost (limited R&D)
• process innovation
• outsourcing

Question 18

Describe the resources/competences of the basis of cost leadership

Answer 18

• access to capital
• process engineering skills
• tight cost control
• job specialization (efficiency increases)
• quantative targets and goals

Question 19

Give an example of cost leadership

Answer 19

ryanair

Question 20

List some key elements of the basis of the differentiation strategy

Answer 20

Emphasis on:
- branding
- quality
- design
- service
- new product development

Question 21

Describe the resources/ competences of the basis of the differentiation strategy

Answer 21

• marketing skills
• product engineering skills
• creativity
• R&D
• cross functional coordination

Question 22

What are the dangers of the cost leadership strategy?

Answer 22

• cost benefit fades away (imitation, rises in material prices)
• changing technology
• clients prefer differentiation
• focused players can cut under you prices

Question 23

What are the dangers of the differentiation strategy?

Answer 23

• imitation
• clients do not attach value on your differentiation
• focused players can add more value

Question 24

What are the dangers of a failing corporate strategy?

Answer 24

Changing the corporate strategy is very difficult on the short/middle term!!

Question 25

What would you suggest to a business in a hypercompetitive market?

Answer 25

Do not try to attain a long-term advantage;

rather

Try to achieve a sequence of temporary advantages that keep the firm one step ahead of the rest of the industry

Question 26

In a hypercompetitive market, what are the four arenas of competition?

Answer 26

• cost & quality (C-Q)
• timing and know-how (T-K)
• Strongholds (S)
• Deep pockets

Question 27

Give an example of the cost & quality competition in an hypercompetitive market

Answer 27

Pepsi vs. Coke

pepsi started at low cost (twice as much for same price)

because rising ingredient cost
–> increased prices to coke’s level

battle shifted form price to quality

coke& pepsi price spiral!

Question 28

Give an example of a stronghold in hypercompetition.

Answer 28

Microsoft was able to attain a ‘monopoly’ status in the market at the starting dates, and was able to keep this status for a long time

Question 29

What are the advantages of the “deep pockets” in hypercompetition?

Answer 29

• stand-alone businesses are discouraged from entering potential markets by the deep-pockets of their rivals

in particular in markets where it is harder to raise external capital

• short-term losses do not automatically result in business failure