competitive strategy Flashcards
What varies among buyers in an industry according to their use of a product, value attached to product attributes, and other impacts on their value chain?
Relative Value Proposition (RVP) of a substitute
What can cause the threat of substitution to vary dramatically among buyers?
Differences in buyer resources, orientation, etc.
What is a key example of substitution threat varying by buyer segment?
Adoption of personal computers by small businesses
What factors cause changes in the threat of substitution?
Changes in relative price, relative value, buyer perception of value, switching cost, and propensity to substitute
What can lead to changes in relative price of a substitute and the product?
Changes in relative costs or profit margins
What are common reasons for changes in relative profit margins of a substitute and a product?
Industry’s response to fight the substitute, entry barriers, market penetration strategies, rivalry, and threat of backward integration
What are important sources of change in buyer value?
Technological change, development of infrastructure, and institutional factors
What is the significance of the S-shaped substitution curve?
It represents the typical path of substitution, including informing and testing phase, takeoff, and reaching an upper bound
What are potential competitive advantages of shared brand name in business units?
Lower advertising costs and reinforcing product images/reputations
What are risks of pursuing interrelationships involving value activities that are small or have little effect on differentiation?
Overemphasis on insignificant interrelationships leading to ineffective strategy
What are the steps in formulating horizontal strategy?
Identifying tangible interrelationships, examining value chains, identifying specific characteristics for sharing
What can be the result of illusory interrelatedness between business units?
Failure of shared activities or altered strategies due to lack of actual compatibility
How can the threat of a substitute change over time?
Through predictable sources like changes in relative price, value, buyer perception, switching cost, and propensity to substitute
What happens when a business unit lowers its margins to fight a substitute?
It can lead to reduced profitability and possibly industry exit if not sustainable
What role does technological change play in the threat of substitution?
It can significantly alter the relative value of the substitute and the original product
What is a typical characteristic of a substitute in its early market stages?
Higher prices and initial adoption by high-income buyers
How do larger companies differ from smaller ones in adopting substitutes like personal computers?
Larger companies have more complex needs and greater resources for automation
What is the impact of shared marketing departments on competitive advantage?
Lower marketing overhead and enhanced bargaining power with channels
What is the challenge in transferring know-how among business units?
Natural reluctance and differing incentives among units
Why is understanding the economic factors behind an S-shaped substitution curve important?
It helps forecast the rate and pattern of substitution
What are the dangers of business units forming alliances outside the firm for interrelationships?
Sharing benefits with partners, strengthening future competitors, and technology diffusion
What can inhibit the transfer of know-how within a firm?
Lack of systematic mechanisms and differing unit incentives
Why might business units ignore potential or existing competitors?
Due to a narrow perspective limited to their own strategies
What is the impact of pursuing interrelationships with insignificant competitive significance?
Wasted resources and efforts on unproductive strategies
What should be the basis of production interrelationships among business units?
Similarities in specific production equipment or process steps
What can cause a business unit to go outside for alliances rather than working internally?
Underestimating benefits of internal projects and overvaluing control over external relationships
What is the role of business units in a firm’s horizontal strategy?
Identifying and advocating strategies based on interrelationships
What can lead to illusory interrelatedness?
Superficial similarities not based on actual shared activities or competitive significance
What is the significance of identifying specific characteristics for value activity sharing?
Ensures meaningful and effective interrelationships
How do buyer perceptions of value affect the threat of substitution?
Influences the adoption and acceptance of substitutes
What role does buyer propensity to substitute play in industry dynamics?
Affects the rate and extent of substitution within an industry
What is the significance of switching costs in the context of competitive advantage?
It affects buyer’s likelihood of switching to substitutes
In the context of radial truck tires, why is their value higher to long-haul fleet operators?
Due to their higher mileage and retreading ability
Why might disposable diapers have higher value to families with two working spouses?
Because of the convenience they offer
How does buyer group segmentation affect the threat of substitution?
Different segments have different substitutes based on specific needs and preferences
In the racetrack case, how do buyer segments affect the threat of substitution?
Entertainment-focused and gambling-focused buyers have different substitutes
Why is personal computer penetration higher in larger small businesses?
Due to more complex paperwork needs and greater resources for automation
What impact do competitors’ strategic moves have on the substitution process?
They can significantly influence the direction and pace of substitution
What are the potential benefits of shared sales force or service networks?
Lower sales costs, better quality salespersons, and improved service responsiveness
What are the risks of shared sales force or service networks?
Incompatibility in buyer purchasing behaviors and product attention disparities
How can market interrelationships contribute to competitive advantage?
Through lower costs in advertising, promotion, and sales, and enhanced differentiation
What are the potential drawbacks of market interrelationships?
Inconsistent product images, buyer reluctance, and dilution of reputation
Why is understanding the economics of substitution crucial for firms?
To develop effective offensive or defensive substitution strategies
What can cause changes in buyer propensity to switch?
Evolving buyer attitudes, resources, and competitive conditions
Why is the relative pace of technological change important in substitution?
It determines which product improves value faster for the buyer
What factors can squeeze a substitute’s profit margins?
Increased rivalry, standardization, and buyer backward integration threat
How can the development of infrastructure affect the value of a substitute?
By enhancing the substitute’s effectiveness or ease of use
Why might a business unit prefer external alliances over internal collaborations?
For greater control and undervaluation of internal interrelationship benefits
What challenges arise in achieving internal interrelationships in a firm?
Organizational issues and underestimation of internal project benefits
What factors influence the likelihood of technological leakage in alliances?
Nature of the alliance and strength of intellectual property protections
Why might business units independently fail to recognize key competitors?
Due to a limited understanding of industry dynamics and competitor interrelationships
What is the risk of investing in shared components when buyer needs differ?
Suboptimal investment decisions and resource allocation
How can transfer pricing fail to solve interrelationship challenges?
When business units do not buy or sell from each other but still need to coordinate
What might trigger a competitive response affecting multiple business units?
Actions by one business unit without considering inter-business unit dynamics
What is the importance of identifying all tangible interrelationships in a firm?
To systematically explore potential competitive advantages through shared activities
How can firms mistakenly overemphasize interrelationships?
By focusing on superficial or insignificant similarities
What should be the starting point in formulating horizontal strategy?
Systematic identification of actual and potential tangible interrelationships
What are the consequences of not having an explicit horizontal strategy?
Lack of systematic identification and extension of interrelationships
Why might a business unit overlook the benefits of internal interrelationships?
Due to a narrow focus on independent strategy and underestimation of internal synergies
What tactic did Kodak use to tie the sales of machines and paper more closely?
Advertising the benefits of finishing pictures on Kodak paper
What should firms do to maintain the ability to cross-subsidize effectively?
Strengthen the connection between the base good and profitable goods
Why is it important for a firm to modify cross subsidization as the industry evolves?
To adapt to changing conditions and maintain competitiveness
What strategy might a firm use if the profitable good is proprietary?
Encourage entry into the base good to boost sales of the profitable good
What is a key sign that cross subsidization is unintended?
Failure to understand true costs leading to inadvertent cross subsidies
Why is understanding competitor behavior crucial in scenario planning?
It influences a firm’s strategic options and likely success
What was a significant change in the U.S. chain saw industry in the early 1970s?
Growing sales of small chain saws to homeowners and casual users
What factors drove the initial spurt in demand for chain saws by casual users?
The energy crisis and the do-it-yourself movement
What impact does increased casual user demand have on competitors in the chain saw industry?
Benefits firms with existing casual user models and mass distribution channels
Why is competitor analysis important in analyzing industry scenarios?
Competitors’ responses to structural changes can influence a firm’s strategy
What are the evolutionary forces driving industry structural change?
Long-run changes in growth, buyer segments, learning, uncertainty reduction, knowledge diffusion, experience accumulation, scale changes, cost changes, innovations, adjacent industry changes, government policy changes, entries and exits
What influences the future state of uncertain structural elements in an industry?
Causal factors such as economic conditions, technological trends, and policy shifts
What is the difference between independent and dependent uncertainties in scenario planning?
Independent uncertainties are true sources of uncertainty; dependent uncertainties are resolved once assumptions about independent uncertainties are made
What approach can limit the proliferation of scenarios in scenario planning?
Reducing the number of scenario variables and assumptions about each one
Why is it important to ensure scenario variables are truly uncertain and independent?
To focus on factors that truly contribute to uncertainty and avoid redundant analysis
What can be the outcome of using very unlikely values for a scenario variable?
Damaged credibility of scenarios and obscured strategic issues
What should assumptions about a scenario variable reflect?
The range of feasible values the variable could take and its impact on industry structure
Why is internal consistency important in scenario construction?
To ensure the scenario is a logical and plausible representation of future industry structure
How can scenarios help in strategic thinking?
By bounding the range of strategic options and stimulating consideration of different industry structures
What are the benefits of analyzing polar scenarios first?
They help bound the range of strategic options and stimulate strategic thinking
Why might scenarios reflecting managers’ assumptions be useful?
To expose differences in assumptions and test overall consistency of thinking
What is a practical limit in scenario planning?
The number of scenarios that can be meaningfully analyzed without obscuring strategic issues
How should the range of assumptions about each scenario variable be determined?
Based on causal factors, impact on structure, managers’ beliefs, and practicality
Why should scenarios not meant to be forecasts include unlikely outcomes?
To expose important differences in possible industry structures
What is the role of causal factors in scenario planning?
They determine the future state of uncertain structural elements
Why might a scenario be eliminated during consistency checking?
If combinations of assumptions about scenario variables are not mutually consistent