Part 6

Question 1

Strategic Positioning

Answer 1

A firm’s ability to create value and enjoy competitive adv. over others depends on how it positions itself in an industry

Question 2

Value created relative to competitors is composed of:

Answer 2

1) Benefit Position
2) Cost Position
3) Focus Strategy

Question 3

Created Value

Answer 3

Difference between value that resides in finished good (maximum WTP) and value sacrificed to convert inputs to finished products

Question 4

CS, Created Value

Answer 4

CS = B - P

C. V = B - C = (B - P) + (P - C) = CS + PS

Question 5

Michael Porter:

Answer 5

‘a firm’s generic strategy describes how it positions itself in the market’

Question 6

Two (+ one) competitive strategies:

Answer 6

1) Cost Leadership; undercutting rivals prices & selling more (despite a quality disadvantage, the cost leader achieves a higher profit margin than high-end competitors)

Good when consumers are price sensitive, it concerns a reach good (furniture)

2) Benefit Leadership; creates a larger B-C by achieving a higher B by matching a rivals’ prices and selling more; firm offers higher benefit than industry, so higher profit margin

Good when consumers are WTP for a premium (Rolex), it concerns an experience good (brand new car)

Question 7

Different focus (+) strategy:

Answer 7

• Consumer specialisation
• Product specialisation
• Geographical specialisation

Question 8

Upward vs downward sloping reaction functions..

Answer 8

Upward – complements

Downward – substitutes

Question 9

Grim-trigger strategy

Answer 9

Relies on a threat of an infinite price war to keep firms from undercutting prices

Question 10

The MES and an industry

Answer 10

The no. of firms in a market is NEGATIVELY correlated with the MES

Question 11

High market concentration facilities..

Answer 11

Cooperative pricing; because of price leadership, advance announcements of price changes, uniform delivery pricing

Question 12

Cost Drivers:

Answer 12

1) related to firm size, scope, cumulative experience
2) related to organisation of transactions
3) not related to firm size, scope, cumulative experience

Question 13

Benefit Drivers:

Answer 13

1) Physical characteristics of a product
2) Quality and characteristics of services/complement goods offered for sale
3) Charac. associated w/ sale/delivery
4) Subjective image of product