Review Exam 2 - Chapter 5

Question 1

Two biggest factors distinguishing competitive strategy

Answer 1

Market target is broad or narrow

Competitive advantage linked to lower costs or differentiation

Question 2

Five Generic Competitive Strategies

Answer 2

Low-cost provider strategy
Broad differentiation strategy
Best-cost provider
Focused (Market Niche) strategy based on low cost
Focused (Market Niche) strategy based on differentiation

Question 3

Low-cost provider strategy - Overview

Answer 3

Lower overall costs than competitors

Find ways to drive cost out of the business

Question 4

Two options for a low-cost advantage

Answer 4

Use the lower-cost edge to underprice the competition while managing a profit and attract price-sensitive buyers
Content with market share, keep price and earn higher profit margin on each unit sold

Question 5

Two avenues for achieving a cost advantage

Answer 5

Do better job performing value chain activities more cost-effectively
Revamp firm’s overall value chain to eliminate or bypass cost-producing activities

Question 6

Low-cost provider strategy - Cost-efficient management of value chain activities

Answer 6

Capture all economies of scale
Experience and learning curve effects
Operate facilities at full capacity
Boost sales and spread costs for R&D, advertising, and general administration over more units
Improve supply chain efficiency
Substitute low-cost for high-cost raw materials when no sacrifice in product quality or performance results
Improve product design
Use online systems/software to achieve operating efficiency
Reduce workforce size/compensation costs
Use bargaining power against suppliers to gain concession
Outsource or vertically integrate

Question 7

Low-cost provider strategy

Revamp value chain activities

Answer 7

Selling direct to consumers, cut out costs for distributors/retailers
Use technologies/information systems that cut out value chain activities
Streamline operations by cutting low value-added work activities
Reduce shipping costs by locating supplier warehouses near facilities

Question 8

When a low-cost provider strategy works best?

Answer 8

Price competition among rivals is fierce
Products of rival sellers are identical & readily available
Few ways to achieve product differentiation that have value
Most buyers use product in the same way
Buyers incur low cost in switching from one seller to
Buyers are large and have power to bargain prices
Newcomers use introductory low prices to attract buyers

Question 9

Differentiation strategies

Answer 9

To be unique in ways that are valuable to a wide range of buyers
Attractive when buyers’ needs and preferences are too diverse to be fully satisfied by a standard product
Incorporate buyer-desired attributes
Most appealing approaches are hard or expensive to replicate
Sustainable differentiation linked to core competencies

Question 10

Successful differentiation allows a firm to:

Answer 10

Command a premium price
Increase unit sales
Gain buyer loyalty to its brand

Question 11

Differentiation strategies - Value chain activities that enhance differentiation

Answer 11

Collaborate with suppliers to create product attributes important to customers
Emphasize new product R&D
Pursue quality improvements
Invest in production R&D, better production techniques
Increase emphasis on marketing, brand-building
Boost caliber of customer service
Improve distribution capabilities
Emphasize human resource management

Question 12

Differentiation strategies - Achieving a differentiating-based competitive advantage

Answer 12

Product or service whose attributes differ significantly from your rivals
Set of capabilities for delivering customer value that rivals do not have
-Incorporate product attributes & features that lower buyer’s cost
-Incorporate features that raise product performance

Question 13

When differentiation works best

Answer 13

Many ways to differentiate & buyers perceive the differences as having value
Buyers needs and uses are diverse
Few rival firms are following a similar differentiated approach
Technological change is fast-paced & competition revolves around rapidly evolving product features

Question 14

Best-cost provider strategies

Answer 14

Aim at giving customers more value for the money by satisfying buyers expectations in appealing features/performance/quality/service and charging lower prices for these attributes
Target market is a value-conscious buyer

Question 15

Best-cost provider strategies - Works best when?

Answer 15

Markets where product differentiation is normal and value-conscious buyers purchase midrange products

Question 16

Best-cost provider strategies - Risk of best-cost provider strategy?

Answer 16

Being squeezed between firms using low-cost and differentiation strategies

Question 17

Focused low-cost strategy

Answer 17

Serves buyers in the target market niche at a lower cost and price than rivals
Lowers cost by limiting customer base
Difference between low-cost and focused low-cost strategies is the size of the buyer group the company is trying to appeal

Question 18

Focused differentiation strategy

Answer 18

Securing a competitive advantage with a product designed to appeal to the unique preferences and needs of a narrowly defined group of buyers
Success depends on the existence of a buyer segment looking for special product attributes and firm’s ability to stand apart from rivals