Competitive Strategy

Question 1

What does strategic planning do?

Answer 1

It identifies the current business strategy and defines the industry structure and company position. It analyses the structure of the target industry and the position of the company relative to this and its competitors. It compares the strategic assumptions with reality, evaluates the current strategy with feasible alternatives, and chooses the best strategy.

Question 2

How can a company be positioned?

Answer 2

defensively, trying to change the balance of forces acting on the industry to improve its own position and overall profitablity, or aggressively (trying to predict the future competitive balance and position the company accordingly)

Question 3

What are the three generic strategies?

Answer 3

cost leadership, differentiation, and focus.

Question 4

What does cost leadership mean?

Answer 4

The pursuit of economy and efficiency in all business operations in order to provide the product or service at the lowest possible price. It should be self-sustaining as the increased market share leads to further economies of scale.

Question 5

advantages cost leadership

Answer 5

the company can defend against substitution or new entrants and it allows for price flexibility.

Question 6

drawbacks cost leadership

Answer 6

it may require an initial competitve advantage, redesign, substantail start-up costs, and other players may reduce their own costs through imitation.

Question 7

Advantages differentiation

Answer 7

defending against buyer price sensitivity through brand loyalty and added value, increased profit margins which deflate the impact of cost leadership, and higher margins to absorb pressure from suppliers

Question 8

drawbacks differentiation

Answer 8

it may result in perceived exclusivity and a limited market share. It also requires investments and can be imitated.

Question 9

What does focus mean?

Answer 9

targeting a product to a very specific market segment. Ideally, it results in a differentiated and low cost position for that segment.

Question 10

Advantages focus

Answer 10

it should avoid threats of competition, feed brand loyalty, and result in a monopoly

Question 11

Drawbacks focus

Answer 11

it requires costs and investments, it can lead to cost disadvantages due to changes in the standard product configuration, fragmentation which can lead to competitors defining smaller market segments, and unclarity about the expected growth pattern of the market segment.