Business Strategies Flashcards
(26 cards)
Goal directed actions
- To achieve a competitive advantage
- In a single product market
STP
- segmentation
- targeting
- positioning
Segmentation
carving focused sections of the market based on customer profile to generate various segments a company can serve
Targeting
choosing the segment to which to sell products/services
Positioning
designing the best way to satisfy customer needs in the chosen segment
Differentiation
- Seeks to create higher value over competitors
- Offers unique features
Charges higher prices - An integrated set of actions taken to product goods/services (at an acceptable cost) that customers perceive as being different in ways that are important to them
- unique features that increase value (consumers pay a higher price)
Differentiation Product Features
-Nonstandardized/ unique products
- Products with varied features
- Products with better/higher quality
- Customers value uniqueness more than they value low cost
Economies of scale
decrease in cost per unit, achieved as output increases
Economies of scope
producing two outputs at less cost, shares resources or technology
Drivers that increase perceived value
- Product features - most important and clearest drivers, unique product features
- customer service - identify unmet customer needs and satisfy them
- complements - add value when consumed as a bundle
- social value - external perceptions of consumption drives percieved value
When differentiation is the best strategy
- Diversity of buyer needs and uses for the product
- Few rival firms follow a similar differentiation approach
- Rapid change in technology and product features
Differentiation Risks
- Relying on product attributes easily compiled by rivals
- Introducing product attributes that do not evoke an enthusiastic buyer response
- Eroding profitability by overspending on efforts to differentiate the firm’s product offering
- Charging too high a premium price
- Experience narrows customers’ perception of the value of differentiated features
- Counterfeit goods replicate differentiated features of the firm’s products
Cost leadership
- Seeks to create similar value over competitors
- Charges lower prices
- An integrated set of actions taken to produce goods or services with features that are acceptable to customer at the lowest cost, relative to that of competitors with features that are acceptable to customers
Types of Cost Leadership Products
- Relativity standardized products (commodities, basic needs)
- Products appeal to/bought by large segments of the market: built in volume
- Lowest competitive pricing
Cost Leadership Goals
- To reduce costs below competitors
- Offer adequate value
- Reduce prices for consumers
- Optimize the value chain for low cost
Cost drivers that keep costs low
- Cost of input factors
- economies of scale
- learning curve effects
- experience curve effects
Learning-curve effects:
- less time to produce output with experience
- Repeated tasks enable learning
- Mistakes, redundancies eliminated
- Steeper curve = more learning
Experience curve effects:
- improvements to technology and production processes
- Combine economy of scale and learning curves
- Scale comes down a given learning curve
- Technology allows movement to steeper curve
Cost of Input Factors
- Sourcing relativity lower quality/ cheaper material
- Sourcing in bulk to minimize costs
- Outsourcing value chain activities
Economies of scale
- As output goes up, costs per unit go down
- Spread fixed costs over large output
- Learning curve effects
- Experience curve effects
- Employ specialized systems and equipment
- Takes advantage of certain physical properties
When Cost Leadership Works Best
- Price competition among rival sellers is vigorous
- Products are readily available from many sellers
- Industry products are not easily differentiated
- Most buyers use the product in the same ways
- Buyers incur low costs in switching among sellers
- Large buyers have the power to bargain down prices
- New entrants can use introductory low prices to attract buyers and build a customer base
Risks of Cost Leadership Strategy
- Processes used to produce and distribute products/ services may become obsolete due to competitors innovations
- Focus on cost reductions may occur at expense of customers perception of differentiation
- Rivals retaliatory price cutting set off a price war
- Relying on a cost advantage that is not sustainable because rivals can copy
Blue Ocean Strategy
- Differentiation and cost-leadership activities
- Uses value innovation to reconcile trade-offs
- Blue oceans represent
- Untapped market space
- Creation of additional demand
- Opportunities for highly profitable growth
To achieve successful value innovation
- lower costs
- increased percieved consumer benefits
