UNIT 6- Competitive Advantage

Question 1

Strategic choices

Answer 1

1. Business strategy- choices about business positioning relative to competitors
2. Strategic directions- choices of products, industries and markets to pursue
3. Strategy methods- how to pursue strategies: organic, acquisition or alliance

Question 2

What is a Strategic Business Unit (SBU)?

Answer 2

A strategic business unit (SBU) is a part of an organisation for which there is a distinct market from another SBU

Question 3

SBU

Answer 3

Generic strategies
- cost leadership
- differentiation
- focus
- hybrid strategies

Interactive strategies
- hypercompetitive strategy
- cooperation
- game theory

Question 4

Key cost drivers

Answer 4

• lower input costs
• economies of scale
• experience
• product/process design

Question 5

Generic strategies

Answer 5

Costs, prices and profit

Question 6

Key differentiation drivers

Answer 6

1. identify the strategic customer- on whose needs the differentiation should be based
2. key competitors- who are the rivals and who may become a rival

Question 7

“Stuck in the middle”

Answer 7

Porter suggests that is better to choose which generic strategy to adopt to avoid the danger of being ‘stuck in the middle’ – doing no strategy well.

• The argument for pure generic strategies is controversial. Porter acknowledges that the strategies can be combined (e.g. if being unique costs nothing).

Question 8

The strategy clock

Answer 8

The Strategy Clock is focused on the prices to customers rather than the costs to organizations.

1- No frills- example Ryanair, Lidl, EasyJet
2. Low price
3. Hybrid- example Mercadona
4. Differentiation
5. Focused differentiation
6, 7 & 8- Strategies destined for ultimate failure

Question 9

Strategy Clock- 1: no frills

Answer 9

• Low price combined with low perceived product benefits focusing on price-sensitive market segments

– Commodity markets
– Price-sensitive customers
– High power, low switching costs among buyers
– Opportunity to avoid major competitors

Question 10

Strategy Clock- 2: Low price strategy

Answer 10

• Lower price than competitors while offering similar product benefits
• Pitfalls
  i. Margin reductions
  ii. Inability to reinvest

Question 11

Strategy Clock- 3: Hybrid

Answer 11

Seeks to simultaneously achieve differentiation and low price relative to competitors

Advantageous when:
i. Greater volumes can be achieved
ii. Cost reductions outside differentiated activities are available
iii. Used as an entry strategy

Question 12

Strategy Clock- 4: Differentiation Strategy

Answer 12

• Seeks to provide products that offer benefits that differ from those offered by competitors
• Dependent upon
  i. Identifying and understanding strategic customer needs
  ii. Identifying key competitors’ strategies

Question 13

Strategy clock- 5: Focused differentiation

Answer 13

• Seeks to provide high perceived product benefits, justifying price premiums

Key issues:
i. Choice between focus strategy and broad differentiation
ii. Tensions between focus strategy and other strategies
iii. Market changes

Question 14

Strategy Clock- 6-8: Failure Strategies

Answer 14

• 6 - Increase prices without increasing service/product benefits
• 7 - Reduction in product/service benefits with increase in relative price
• 8 - Reduction in benefits whilst maintaining price

Question 15

Achieving low prices

Answer 15

1. Operate with lower margins
2. Develop a unique cost structure
3. Create efficiency in organizational capabilities
4. Focus on market segment with low expectations

Question 16

Dangers of low price strategies

Answer 16

• Competitors might follow suit and do the same.
• Customers associate low price with low benefits.
• Cost reductions may result in inability to pursue differentiation strategy.

Question 17

Sustaining advantage through differentiation

Answer 17

1. Create difficulties of imitation
2. Imperfect mobility- capabilities that sustain differentiation cannot be traded
3. Lower- cost position than competitors can allow an organization to sustain better margins that can be reinvested to achieve and maintain differentiation

Question 18

Establishing strategic lock-in (becomes an industry standard)

Answer 18

1. Size or market dominance- others will seek to conform to such standards
2. First-mover dominance- likely to set early in life cycles of markets
3. Self-reinforcement commitment- when one or more firms support the standard, more come on board, then others are obliged to and so on
4. Insistence on the preservation of the lock-in position- insistence on conformity to the standard

Question 19

Hypercompetition

Answer 19

Hypercompetition describes markets with continuous disequilibrium and change.

• It may be impossible to plan for long-term sustainable competitive advantage.
• Planning may actually destroy competitive advantage by slowing down responses.
• Successful hypercompetition demands speed and initiative rather than defensiveness.

Question 20

Characteristics of successful hyper competitive strategies

Answer 20

• cannibalise bases of success
• smaller moves may be more effective than bigger ones
• disruption of the status quo
• be unpredictable
• mislead the competition