Business Strategies Flashcards
(30 cards)
Business-level Strategy
The plan of action that managers adopt to use resources and distinctive competencies to gain a competitive advantage
Customer Needs
Product Differentiation
Needs:
- Desires, wants, or craving that can be satisfied through product attributes
Product Differentiation
- Designing products to satisfy customers’ needs
Balancing differentiation with costs
Ability to charge a higher prices
Different ways to achieve distinctness.
Strategies to market segmentation
- Choose not to recognize that different groups of customers have different needs; serve the average customer
- Segment a market and develop a product to suit the needs of each segment
- Recognize that the market is segments but concentrate on serving only one segment.
Consistent and compatible set of choices concerning:
- How to differentiate and price the product
- When and how much to segment the market to maximize demand.
- Where and how to invest capital in order to create value while keeping cost structures viable ( of competitive pricing )
Competitive Strategies
Basis competition
- Lower cost
- Differentiation
Market Target
- Broad range of buyers
- Narrow buyer segment or niche
Cost Leadership
Key to success:
- Make achievement of low-cost relative to rivals the THEME of firm’s business strategy
- Find ways to drive costs out of business year-after-year.
- Low-cost leadership means low OVERALL costs, not jus glow manufacturing or production costs!
Cost Leadership Strategy works best when:
- Price competition is vigorous
- Product is standardized or readily available from many suppliers
- There are few ways to achieve differentiation that have value.
- most buyers use product in same ways
- Buyers incur low switching costs
- buyers are large and have significant bargaining power.
Approaches to Cost Leadership
Approach 1:
- Do a better job than rivals of performing value chain activities efficiently and cost effectively
Approach 2:
- Revamp value chain to bypass some cost-producing activities
Characteristics of a Cost Leader
- Tight cost controls
- cost conscious corporate culture
- employee participation in cost-control efforts
- ongoing efforts to benchmark costs
- intensive scrutiny of budget requests
- detailed control reports
- highly structured organization
- programs promoting continuous cost improvement
- quantitative incentives
Pitfall of COst leader Strategies
- Cost leadership is not sustained
. Competitors imitate
. Technology changes
. Other bases for cost leadership erode - Proximity in Differentiation is lost
- Cost focuses achieve even lower costs in segments
Differentiation Strategies
Objective
- Incorporate differentiating features that cause buyers to prefer firm’s product or service over the brands of rivals.
Key to Success
- Find ways to differentiate that Create Value for buyers and that are NOT EASILY MATCHED or CHEAPLY COPIED by rivals.
- Not spending more to achieve differentiation than the price premium that can be charged.
When uniqueness is achieved
- Buyers perceive valuable
- Rivals find hard to match or copy
- Can be incorporated at a cost well below the price premium that buyers will pay.
Benefits of successful Differentiation
A product/service with unique and appealing attributes allows a firm to
- Command a premium price and / or
- Increase unit sales and/ or
- Build brand loyalty.
Differentiation strategy works best
- There are many ways to differentiate a product that have value and please customers
- buyers needs and uses are diverse
- few rivals are following a similar type of differentiation approach
- Technological change is fast-paced and competition is focused on evolving product features.
Drivers of Uniqueness
- Product features and performance
- Complementary services
- Intensity of marketing activities
- Technology embodied in design and manufacture
- quality of purchased inputs
- Procedures influencing the conduct of activities
- Skill and expertise of employees
- Location
- Degree of vertical integration
Achieving a Differentiation- based Advantage
Approach 1
- Incorporate product features/attributes that lower buyer’s overall costs of using product
Approach 2
- Incorporate features/attributes that raise the performance a buyer gets out of the product.
Approach 3
- Incorporate features/attributes that enhance buyer satisfaction in non-economic or intangible ways.
Signals of value may be as important as actual value when
- Nature of differentiation is hard to quantify
- Buyers are making first-time purchases
- repurchase is infrequent
- buyers are unsophisticated
Characteristics of a Differentiatior
- Strong Marketing ability
- Creative Flair
- Corporate reputation for quality, tech leadership
- strong channel cooperation
- Tight coordination between R&D, product development and marketing
- Use of subjective measures
- amenities to attract highly skilled employees related to differentiation
Pitfalls of Differentiation Strategies
Differentiation is not sustained
- Competitors imitate
- Bases become less important to customers
Cost Proximity is lost
Differentiation focuses achieve even greater differentiation in segments
Things that can make a differentiation strategy fail
- Trying to Differentiate on a feature buyers do not perceive as lowering their cost or enhancing their well-being
- Over - differentiating such that product features exceed buyers’ needs
- Charging a price premium that buyers perceive is too high
- Failing to signal value
- Not understanding what buyers want or prefer and differentiating on the “wrong” things.
What makes a segment attractive for focusing ?
- big enough to be profitable
- Goods growth potential
- not crucial to success of major competitors
- focuser has resources to effectively serve segment
- Focuser can defend against challengers via superior ability to serve buyers in segment and customer goodwill.
Nature of Focus/ Niche Strategies
- Limited number of market segments
- same considerations apply as in broad line strategies
- focus cost leadership is difficult due to limited scale
- focus differentiation can be effective due to in-depth understanding of customers and needs.
Pitfalls of a focus/Niche Strategy
- Focus Strategy is imitated
- Target segment becomes structurally unattractive
- Structure erodes
- Demand Disappears
- Broad-line Players overwhelm the segment
- The segment’s differences from other segments narrow
- The advantages of a brad line increase
- New focusers sub-segment the market.
Best Cost/Value Strategies Risks and Conditions
- Traditionally, cost and differentiation together left firm “caught in the middle”
- Possible to pursue under defined conditions
- Flexible manufacturing technology
- Reconfigure value chain
- Differentiation based on factor which can be driven down through scale to extremely low level.
