Obs310 Block 4

Question 1

What are the five generic business strategies?

Answer 1

Low-cost provider
Broad differentiation 
Focused low-cost
Focused differentiation 
Best-cost provider

Question 2

What is a low cost provider strategy?

Answer 2

Striving to achieve lower overall costs than rivals on products that attract a broad spectrum of buyers.

Question 3

Explain a broad differentiation strategy?

Answer 3

Differentiating a firms product offering from rivals with attributes that appeal to a broad spectrum of buyers.

Question 4

What is a focused low-cost strategy?

Answer 4

It is a strategy that concentrates on a narrow price buyer segment and lower costs in order to offer a lower priced product.

Question 5

What does a focused differentiation strategy entail?

Answer 5

The firms differentiates its products in order to appeal to the unique preferences and requirements of a niche members.

Question 6

What does a best cost provider strategy entail?

Answer 6

Giving customers more value for money by offering upscale features and attributes at a lower price.

Question 7

Name two competitive advantages of low cost provider strategy?

Answer 7

ADVANTAGES

• greater total profits and increased market share gained from underpricing competitors.
• larger profit margins when selling products at comparable and competitive prices with rivals.

Question 8

Explain two risks of a low cost provider strategy?

Answer 8

DISADVANTAGES

• low pricing does not attract enough new customers
• rivals retaliatory price cutting sets off a price war.

Question 9

How do you gain a low cost advantage?(2)

Answer 9

Perform value chain activities more cost effectively than rivals.
Revamp the firms overall value chain in order to eliminate or bypass activities.

Question 10

Cost driver definition?

Answer 10

A cost driver is a factor that has a strong influence on the company’s costs. Any factor that causes a change in the cost of an activity.

Question 11

Two types of cost drivers?

Answer 11

Asset based cost driver- eg machines and technology

Activity based cost driver-

Question 12

How to secure a cost advantage?

Answer 12

• Hold minimal assets and use lower cost inputs
• Only offer essential product features or service
• offer only limited product lines
• use most economical delivery methods.

Question 13

Name 5 cost drivers?

Answer 13

• incentive systems and culture
• economies of scale
• learning and experience
• capacity utilization
• suppy chain efficiency
• outsourcing vertical integration
• Imput costs
• Production technology and design
• Communication systems and IT
• bargaining power

Question 14

Explain 5 cost cutting methods.

Question 15

Explain 5 cost cutting methods?

Answer 15

CAPTURE ALL AVAILABLE ECONOMIES OF SCALE (economies of scale are created when the cost of goods and services decreases as a firm is able to increase production. Large wherehouse operationson input side and large distributioncenterson output side)
-TAKING FULL ADVANTAGE OF EXPERIENCE AND LEARNING CURVE EFFECTS (as people learn to perform and activity they gain more experience. Therefore the cost of performing that activity declines over time. Mastering new technology)
-OPPERATING FACILITIES AT FULL OR NEAR FULL CAPACITY (will reduce unit costs if firms activities have substantial fixed costs. Spread out fixed costs and depreciation over more units.)
IMPROVING SUPPLY CHAIN EFFICIENCY (get into partnerships with suppliers, to make ordering and purchasing process easier. To reduce inventory carrying cost and shipping and materials handling costs)
-SUBSTITUTING LOWER COST IMPUTS WHEREVER THERE IS LITTLE TO NO SACRIFICE IN PRODUCT QUALITY OR PERFORMANCE. (even possible to design high cost components out of product altogether)
-USING THE FIRMS BARGAINING POWER TO GAIN CONSESSIONS FROM SUPPLIERS AND OTHERS IN THE VALUE CHAIN.(bargaining power to win price discounts on large volume purchases.)
-USING ONLINE AND SOPHISTICATED SOFTWARE TO ACHIEVE OPERATING EFFICIENCIES. (sharing data and production schedules with suppliers using enterprise resource planning and manufacturing execution software. To reduce parts of inventory, trim production times and lower labor requirements.)
-IMPROVING PROCESS DESIGN AND EMPLOYING ADVANCED PRODUCTION TECHNOLOGY. (highly automated robotics production technology and shift to mass customization production process.)
-BEING ALERT TO THE COST ADVANTAGES OF OUTSOURCING OR VERTICAL INTEGRATION.( outsourcing some activities can be cheaper than performing them in house)
-MOTIVATING EMPLOYEES THROUGH INCENTIVES AND CULTURE ( incentives can encourage better employees productivity and can Lasorda lead to cost saving innovations from employee’s suggestions.)

Question 16

What are the keys to becoming a successful low cost provider?

Answer 16

• spending aggressively on resources and capabilities that promise to drive costs out of the business.
• Carefully estimating the cost savings of new technologies, before investing in them.
• constantly reviewing cost-saving resources to ensure they remain competitively superior.

Question 17

Conditions under which a low cost provider works best ? (5)

Answer 17

1) price competition among rival sellers is vigorous
2) Identical products are available from many sellers
3) There are few ways to differentiate industry products.
4) Most buyers use the product in the same ways.
5) buyers incur low costs in switching among sellers

Question 18

Pitfalls to avoid in pursuing a low-cost provider strategy? (4)

Answer 18

• engaging in overly aggressive price cutting that does not result in unit sales gains that are large wnough to recover forgone profits.
• relying on cost advantages that are not sustainable as they can be easily copied or overcome by rivals.
• focus too much on cost reduction that the firms offering is too feature poor to gain the interest of buyers.
• having a rival discover a lower cost value chain approach or develop a cost saving technological breakthrough.

Question 19

Considerations of a effective broad differentiation strategy

Answer 19

• Carefully study buyer needs and behaviors, values, and willingness to pay for unique products or services.
• incorporate features that both appeal to buyers and creat a sustainably distinctive product offering.
• use higher prices to recoup differentiation costs.

Question 20

Advantages of differentiation?

Answer 20

• Can command premium prices for firms products.
• Increased unit sales due to attractive differentiation.
• brand loyalty that bonds the buyers to the differentiating features of a product.

Question 21

Uniqueness driver definition?

Answer 21

A factor that can have a strong differentiating effect.( value driver)
Can be based on physical or functional attributes of the firm.
Can be a result of superior capabilities of the firms human capital. Perception of Value (brand loyalty) in buyers where there is little reason for it to exist

Question 22

Name 5 value drivers.

Answer 22

Quality control processes
Customer service 
Product performance and features 
Production and R&D
Input quality
Technology and innovation 
Employee skill training and experience 
Sales and marketing (building brand loyalty 
Pursue continuouse quality improvement 
HRM activities. Improve skill expertise and knowledge of company personelle