Exam 2 - CH6 Flashcards
Study for Exam 2
What is business-level strategy?
The goal-directed actions managers take in their quest for competitive advantage when competing in a single product market.
What are the key questions addressed by business-level strategy?
- How will we compete to gain & sustain competitive advantage?
- Which customer segments will we serve?
- What customer needs will we satisfy?
- Why do we want to satisfy them?
- How will we satisfy our customers’ needs?
What is the primary goal of a differentiation strategy?
To create higher value than competitors by offering products or services with unique features. It can increase costs (R&D, Innovation)
What is the primary goal of a cost leadership strategy?
To create similar value as competitors while delivering products or services at lower cost.
What are the types of focused business strategies?
- Focused Differentiation
- Focused Cost Leadership
What does the term ‘Strategic Trade-Offs’ refer to?
Choices between a cost or value position that maximize the firm’s economic value creation and profit margin.
What are the key value drivers in a differentiation strategy?
- Product Features
- Customer Service
- Complements
What is the goal of a cost-leadership strategy?
To reduce the firm’s cost below its competitors while offering adequate value.
What are the key cost drivers in a cost-leadership strategy?
- Cost of input factors
- Economies of scale
- Learning-curve effects
- Experience-curve effects
What is the concept of economies of scale?
Output increases while the cost per unit decreases.
What is blue ocean strategy?
Successfully combining differentiation and cost-leadership activities to create untapped market space.
What is the metaphor of blue ocean intended to represent?
Untapped market space, creation of additional demand, and opportunity for highly profitable growth.
What are the four actions framework of blue ocean strategy?
- Eliminate
- Reduce
- Raise
- Create
What does the term ‘Stuck in the Middle’ refer to?
A situation where a firm fails to choose between low cost and differentiation strategies.
What is the strategy canvas?
A graphical depiction of a company’s performance relative to its competitors across the industry’s key success factors.
What are the implications for strategists according to the chapter?
Only a handful of strategic options are available; managers must understand firm and industry effects and fine-tune strategy formulation and execution.
True or False: A well-formulated and implemented strategy enhances the chances of superior performance.
True
Fill in the blank: The primary purpose of trade-offs is to maximize the firm’s _______.
[economic value creation]
What are the 2 generic business strategies?
- Cost Leadership
- Differentiation
What are the 4 business strategies?
- Cost Leadership
- Differentiation
- Focused Cost Leadership
- Focused Differentiation
How are resources focused in a Cost-Leadership Strategy?
-reducing costs
-reducing price for customers
-optimizing the value chain to achieve low-cost
Cost Leadership Benefit:
protected from competitors if price war
Cost Leadership Risk:
new entrant arrives and new capabilities needed
Differentiation Benefit:
reduced rivalry & high cost of imitation
Differentiation Risk:
might overshoot features needed & vulnerable to price-sensitive customers
The Value Curve describes…
Horizontal connection points located on the Strategy Canvas that help strategists determine courses of action.
There are several cost drivers that can be managed in order to establish a low-cost leadership advantage. One of the primary cost drivers is
combining experience-based learning and process innovation to move onto a steeper learning curve.
The two primary competitive levers that managers can use in order to answer the question of how to compete are
value and cost.
Supreme Coffee Roasters is a premium cafe that is reputed for its superior customer service. The coffee shop also serves gourmet food to its customers, which allows it to charge a premium price. Cheap Beans, in contrast, is a chain of coffee shops that charges the lowest price in the industry due to its self-service policy. However, Vale’s Coffee Inc. has found a balance between these two strategic groups by using automated ordering to free up its employees to work as master baristas and bakers, thus focusing on creating excellent products. It charges a price slightly above that of Cheap Beans. In this scenario, Vale’s Coffee is following a
blue ocean strategy.
Oberlo Autos competes against the global leaders in the automobile industry by developing and selling acceptable quality vehicles at a lower price. This has been possible due to the company’s large-scale production that reduces its manufacturing expenses. Which of the following generic business strategies is Oberlo Autos applying in this scenario?
cost-leadership strategy
There exist important trade-offs between value creation and low cost because value creation and cost tend to be
positively correlated.
Total Tools is a chain of home improvement stores that sells tools, paint, and construction products at higher prices than its competitors. Yet, the chain has a large customer base due to its wide product inventory and superior customer service. Which of the following generic business strategies has Total Tools likely adopted in this scenario?
a differentiation strategy
ACME Inc. has retained you to review their low-cost strategy for their company. Based on several consultations with the client, you realize that their per unit costs are actually increasing as their business grows and expands. You conclude that this firm is experiencing
diseconomies of scale.
The online retailer SW19 Inc. has successfully created a higher perceived value in the tennis equipment and apparel industry, even though it offers the same products at slightly higher prices than its competitors. This has been mainly attributed to the company’s easy-to-navigate website, simple return procedures, and fast delivery. Thus, the value driver for SW19 is its
superior customer service.
A firm that follows the differentiation strategy is protected from the threat of new entrants primarily due to its
reputation for quality.
As differentiation and cost-leadership are distinct strategic positions that require important trade-offs, it is
quite difficult to translate a blue ocean strategy into reality.
