Generic Strategies

Question 1

Define a “cost leadership strategy”.

Answer 1

Under a cost leadership strategy, an entity seeks to be the low-cost provider for a given level of output in an industry. The strategy is intended to enable either higher gross profits than competitors or sales at a lower price to gain market share.

Question 2

Define a “focus strategy”.

Answer 2

Under a focus strategy, an entity focuses on a narrow industry segment (an industry subgroup or “niche”) and seeks to achieve either:
a cost advantage, or
differentiation.

Question 3

Define a “differentiation strategy”.

Answer 3

Under a differentiation strategy, an entity seeks to develop and offer a product or service that has unique features for which customers are willing to pay a premium price that more than covers the extra cost of providing the product or service.

Question 4

Identify the three generic strategies enumerated by Michael Porter.

Answer 4

Cost leadership;
Differentiation;
Focus (or Niche)

Question 5

An entity can formulate its basic strategy within the context of an economic system and an economic market structure, and with an understanding of what 3 things???

Answer 5

(a) the characteristics of the macro-environment,
(b) the industry in which an entity operates or may operate, and
(c) the relationship between an entity and an external environment

Question 6

Under this strategy, an entity will seek to be the low cost provider in an industry for a given level of output?

Answer 6

Cost Leadership Strategy

Question 7

Under this strategy, an entity will sell its product or service either at the average industry price and earn a profit higher than that of other competitors in the industry or below the average industry price so as to gain market share?

Answer 7

Cost Leadership Strategy

Question 8

What are the 5 ways in which entities may acquire or maintain cost advantages?

Answer 8

Entities acquire or maintain cost advantages by:

a. Identifying and avoiding unnecessary costs;
b. Improving process efficiency;
c. Gaining exclusive access to lower cost inputs;
d. Using outsourcing in an optimal manner;
e. Pursuing vertical integration - moving up or down in the supply chain.

Question 9

Entities that adopt a ___ ___ ___ are likely to have high levels of expertise in manufacturing processes

Answer 9

cost leadership strategy

Question 10

What are the risks of cost leadership strategy?

Answer 10

Entities that adopt the cost leadership strategy face certain risks, including:

a. The possibility that other entities will be successful in adopting a cost leadership strategy and meet or beat the cost of the entity.
b. The possibility that technology will improve such that other firms may be able to produce at equally low cost, or be able to apply new technologies to produce at an even lower cost.
c. The possibility that a number of firms may focus on segments of the industry and be able to separately achieve lower costs in each of those segments so that as a group they are able to control a significant portion of the industry.

Question 11

Under this strategy, an entity will seek to develop a product or service that offers unique features that are valued by customers, and that those customers perceive to be better than or different from the products of competitors in the industry?

Answer 11

Differentiation

Question 12

Under this strategy, an entity expects that the value added by the quality or uniqueness of the product or service will allow the entity to charge a premium price which will more than cover the extra cost of providing the good or service?

Answer 12

Differentiation

Question 13

An entity may acquire or maintain differentiation by providing goods or services that have special or unique?

Answer 13

An entity may acquire or maintain differentiation by providing goods or services that have special or unique:

a. Features;
b. Functionality;
c. Durability;
d. Service support.

Question 14

Entities that adopt ___ ___ are likely to have leading-edge scientific and market research capabilities.

Answer 14

differentiation strategy

Question 15

What are the risks to differentiation strategy?

Answer 15

Entities that adopt the differentiation strategy face certain risks, including:

a. Changes in customer preferences or economic status;
b. Imitation by competitors, including the threat of “knock-offs;”
c. The possibility that a number of firms may focus on segments of the industry and be able to separately achieve greater differentiation in each of those segments so that as a group they are able to capture a significant portion of the industry.

Question 16

Under this strategy, an entity will focus on a narrow segment of an industry (a “niche”), and within that segment, seek to achieve either a cost advantage or differentiation?

Answer 16

focus

Question 17

Under this strategy, an entity seeks to identify a distinct subgroup within an industry and focuses on providing goods or services that meet the distinctive needs of that subgroup?

Answer 17

focus

Question 18

What are the characteristics of entities following a focus strategy?

Answer 18

Entities that successfully carry out the focus strategy typically have the following kinds of strengths:

a. Outstanding market research and understanding, especially of the target subgroup;
b. Ability to tailor product or service development strength to the target subgroup;
c. High degree of customer satisfaction and loyalty.

Question 19

What are the risks to focus strategy?

Answer 19

Entities that adopt the focus strategy face certain risks, including:

a. Typically, smaller size, lower volume and less bargaining power with suppliers;
b. Imitation by competitors;
c. Changes in targeted customers’ preferences or economic status;
d. The possibility of an industry cost leader adapting its products or services so as to compete in the focus market;
e. The possibility that other entities may focus on and carve out subgroups of the targeted focus group.

Question 20

By combining the alternative advantages of low cost strategies and differentiation strategies, together with the alternative of a broad (industry-wide) or a narrow (market segment) focus, a ___ ___ ___ can be developed.

Answer 20

generic strategies matrix

Question 21

A ___ ___ may be based on either cost advantage or differentiation.

Answer 21

focus strategy

Question 22

Research and development are critical to entities that adopt a ___ ___.

Answer 22

differentiation strategy.

Question 23

A ___ ___ targets a narrow market segment.

Answer 23

focus strategy

Question 24

An entity may achieve a cost advantage over competitors by pursuing ___ ___.

Answer 24

vertical integration.

Question 25

An entity that adopts a ___ ___ is likely to have lower volume than an entity that adopts a different strategy.

Answer 25

focus strategy

Question 26

Entities that adopt a ___ ___ ___ are likely to invest significant assets in production assets.

Answer 26

cost leadership strategy

Question 27

Entities that adopt a ___ ___ ___ are likely to have high levels of skill in designing products for efficient manufacturing;

Answer 27

cost leadership strategy

Question 28

Entities that adopt a ___ ___ ___ are likely to have efficient channels for the distribution of products.

Answer 28

cost leadership strategy

Question 29

Entities that adopt ___ ___ are likely to have highly creative and skilled product/service development personnel

Answer 29

differentiation strategy

Question 30

Entities that adopt ___ ___ are likely to have strong and dedicated marketing and sales personnel capable of conveying the strengths of the product or service

Answer 30

differentiation strategy

Question 31

Entities that adopt ___ ___ are likely to have a reputation for innovation, quality and service.

Answer 31

differentiation strategy