Slides 23 Flashcards
What defines Competitive Advantage?
When a firm earns a higher rate of economic profit than the average rate of economic profit in its market.
Firms achieve a competitive advantage by creating and delivering more economic value than their rivals.
What framework is used to gauge the ability to create value?
Attractiveness of the market (gauged through P-5 analysis) and a firm’s cost/benefit position relative to its competitors.
P-5 analysis refers to the analysis of five competitive forces in an industry.
Define Maximum Willingness-to-Pay.
The most amount of money that a particular consumer is willing to pay for a product.
Willingness-to-pay varies between consumers based on tastes, values, preferences, and needs.
What is Consumer Surplus?
The amount of value that a consumer receives if a product is priced below their willingness to pay.
Consumers will purchase the product that gives them the highest consumer surplus.
Fill in the blank: The purpose of the _______ is to help firms identify operational strengths and weaknesses.
value chain
List the primary activities in Porter’s Value Chain.
- Inbound logistics
- Production operations
- Outbound logistics
- Marketing & Sales
- Service
These activities directly contribute to the production, sale, and support of the product or service.
What are the four support activities in Porter’s Value Chain?
- Firm infrastructure
- Human resource management
- Technology development
- Procurement
Support activities provide necessary infrastructure to support primary activities.
True or False: Consumer Surplus is always positive.
False
Consumers will never purchase a product that has a negative consumer surplus.
What is the impact of a firm’s unique value chain configuration?
It allows firms to generate more value than competitors.
A unique value chain can provide a competitive advantage.
Define Core Competencies.
Unique and rare capabilities that give a firm an advantage.
Core competencies can lead to superior performance in the marketplace.
What are the three different types of Cost Leadership?
- Benefit Parity
- Benefit Proximity
- Qualitatively Different
Each type describes a different way a company can offer lower costs compared to competitors.
Fill in the blank: A firm’s generic strategy describes how it _______.
positions itself
What is the significance of the Indifference Curve in Consumer Surplus?
It yields price-quality combinations that yield the same consumer surplus.
Points above the indifference curve lower consumer surplus, while points below offer higher consumer surplus.
How does the Value Creation formula work?
Consumer Surplus = B - P; Producer Surplus = P - C; Value Created = (B - P) + (P - C) = (B - C)
B represents the benefit a consumer expects, P is the product’s monetary price, and C is the cost to produce.
What happened to Southwest Airlines during the holidays of December 2022?
Their computers crashed due to too many passengers, resulting in the cancellation of 60% of their flights and a loss of $1.2 billion.
This illustrates a failure in support activities disabling primary activities.
What is the relationship between Value Creation and Competitive Advantage?
The seller whose product characteristics and price provide the greatest amount of consumer surplus will win.
Consumers will choose the product that creates the most value.
What is Benefit Parity?
Product has superior benefits or quality (B) as competitors but sold at the same price (P).
What is Benefit Proximity?
Product has significantly higher benefits or quality (B) than competitors but at a slightly higher price (P).
What strategy does Walmart use to achieve lower prices?
Economies of scale and extreme bargaining power with its suppliers.
True or False: Ryanair provides free meals on flights.
False.
Why are Ikea’s products cheaper than their competitors?
They offer affordable, stylish home furnishings.
What are the two types of Benefit Leadership?
- Benefit Parity
- Benefit Proximity
What are Benefit Drivers?
Types of benefits that help firms differentiate themselves.
What are examples of physical characteristics that can differentiate a product?
- Superior performance
- Quality
- Ease of use
What does Microsoft Office 365 include?
- Cloud storage
- Video conferencing software
- Regular software updates
What does Gorillas specialize in?
Ultra-fast delivery.
List characteristics associated with the sale or delivery of a good.
- Speed and timeliness of delivery
- Non-pushy salespeople
What shapes consumer’s perceptions or expectations of a product’s performance?
- Product’s reputation
- Advertising
- Other consumers’ experiences
What is a Cost Advantage?
Better when the nature of the product limits opportunities for enhancing its perceived benefits.
What is a Benefit Advantage?
Better strategy when consumers will pay a significant price premium for attributes enhancing perceived benefits.
What is the optimal strategy for firms with low product differentiation?
Underprice competitors to gain market share.
What is the optimal strategy for firms with high product differentiation?
Charge a price premium relative to competitors.
What does being ‘stuck in the middle’ refer to?
Firms attempting to perform both low-cost and benefit-leadership strategies poorly.
How can firms avoid being ‘stuck in the middle’?
- Become a benefit-leader first
- Lower costs through economies of scale
What are the two dimensions an industry can be represented in?
- Product Groups
- Customer Groups
What characterizes a broad coverage strategy?
- Wide product range
- Multiple customer segments
- Sold in a variety of different markets
What is customer specialization?
When a firm offers an array of related products to a limited class of customers.
What is product specialization?
When a firm produces relatively limited product varieties for a potentially wide set of customer groups.
What is geographic specialization?
When a firm offers its products in a specific geographic location.
What segments does OVS cover?
Fashion trendsetters, budget-conscious consumers, office workers, active individuals, children’s clothing.
Fill in the blank: The _______ strategy seeks to serve all customer groups in the market.
broad coverage
What is the expected outcome for a brand with a higher willingness-to-pay compared to its average costs?
It is likely to gain market share.
Which brand is expected to gain market share in the next few months?
Home & Health
Assumes stable demand, no new firms or products, constant input prices, and constant returns to scale.
Which brand can earn the highest profits in the long run assuming prices can be changed?
Shining Star
Assumes stable demand, no new firms or products, constant input prices, and constant returns to scale.
Which two brands can earn the highest profits in the long run when prices can be changed?
Shining Star and Home & Health
Assumes stable demand, no new firms or products, constant input prices, and constant returns to scale.
What is the factory investment for the Cost Leader strategy?
1,500,000 €
This reflects the initial investment for the factory in the Cost Leader strategy.
What is the factory investment for the Benefit Leader strategy?
1,350,000 €
This reflects the initial investment for the factory in the Benefit Leader strategy.
What is the maximum capacity for the Cost Leader strategy?
25,000
This indicates the maximum production capacity for the Cost Leader strategy.
What is the maximum capacity for the Benefit Leader strategy?
15,000
This indicates the maximum production capacity for the Benefit Leader strategy.
What is the annual maintenance cost for the Cost Leader strategy?
44,000 €
This is the annual maintenance cost associated with the Cost Leader strategy.
What is the annual maintenance cost for the Benefit Leader strategy?
40,000 €
This is the annual maintenance cost associated with the Benefit Leader strategy.
What is the sales price for the Cost Leader strategy?
60.00 €
This reflects the selling price per unit in the Cost Leader strategy.
What is the sales price for the Benefit Leader strategy?
120.00 €
This reflects the selling price per unit in the Benefit Leader strategy.
What is the tax rate for both strategies?
25%
This indicates the tax rate applied to both strategies.
Fill in the blank: The average cost for Super Saver is _______.
14 €
This reflects the average cost associated with the Super Saver brand.
Fill in the blank: The willingness-to-pay for Shining Star is _______.
28 €
This indicates the maximum price consumers are willing to pay for Shining Star.
