Ch 5 - Test 2 Flashcards
(25 cards)
Generic Strategies
Low-cost leadership, Differentiation, Focus
Competitive Advantages
exists when a firm’s strategy gives it an edge in:
- defending against competitive forces
- scurrying customers
Keys to Success
Convince customers of Superior Value:
- Offer buyers a good product at a low price
- Use differentiation to provide a better product buyers think is worth a premium price
Objectives of Competitive Strategy
- Build a Competitive Advantage
- Cultivate Clientele of Loyal Customers
- Know the socks off rivals, ethically and honorably
Low-Cost Leadership: Strategy Objectives
Open up a sustainable cost advantage over rivals, using lower-cost edge as a basis:
- Under-price rivals and reap market share gains
- Earn higher profit margin selling at going price
Low-Cost Leadership: Key’s to Success
Make achievement of low-cost relative to rivals the THEME of firm’s business strategy: low overall costs does not consist of just manufacturing or production costs
Approaches to Securing a Cost Advantage
#1: Do a better job than rivals by optimizing Value Chain #2: Revamp value chain to bypass some cost-producing activities
Approach 1: Controlling the Cost Drivers
- Capture Scale Economics; avoid scale diseconomies
- Capture learning and experience curve effects
- consider linkages with other activities in value chain
- Compare vertical integration vs. outsourcing
- Assessing first-mover adv. vs. disadv.
- Control percentage of capacity utilization
- Make smart choices related to operations and overhead
Approach 2: Revamping the Value Chain
- Simplify product designs
- Offer basic service
- Shift to a simpler technological process
- Find ways to bypass high cost raw materials
- Use Direct-to-End user sales/marketing approaches
- Relocated facilities closer to supply chain nodes
- Redevelop core business processes
- Use computer tech to streamline steps, process, and cut out cost-producing activities
Characteristics of Low-Cost Providers
- Cost conscious corporate culture
- Employee participation in cost-control
- Ongoing benchmarking efforts
- Intensive scrutiny of budgets
- Continuous cost improvement
Successful Low-Cost Producers
Champion frugality, but wisely and aggressively invest in cost-saving improvements
What managers need to achieve to establish low-cost leadership
- Identify cost drivers: focus on cost-creating activities
- Use Knowledge about costs drivers to ensure lower production each year
- Reengineer how activities are performed and coordinated– eliminate unnecessary work steps
- Be creative in cutting some activities of value chain system
Low-Cost Leadership: Competitive Strengths
- Better positioned than RIVAL COMPETITORS to compete offensively on basis of price
- Low-cost provides some protection from bargaining leverage of powerful BUYERS
- Low-cost provides some protection from bargaining leverage of powerful SUPPLIERS
- Low-cost provider’s pricing power acts as a significant barrier for POTENTIAL ENTRANTS
- Low cost puts a company in position to use low price as a defense against SUBSTITUTES
Low-Cost Strategy: Works best when:
- Price Competition is consistent
- Product Standardization
- Product Availability
- Product use congruency by consumers
- Buyers incur low switching costs
- Buyers are large and have significant bargaining powers
Low-Cost Strategies: Pitfalls
- Overly Aggressive in cutting price (revenue erosion of lower price is not offset by gains in sales volume– profits go down, not up)
- Low cost methods are easily imitated by rivals
- Becoming too fixated on reducing costs
- Ignoring: buyer interest, declining buyer sensitivity to price, changes in how product is use by consumers
- technological breakthroughs open up cost reductions for rivals too
Differentiation Strategies: Objectives
Incorporate differentiating features that cause buyers to prefer firm’s product or service over the brands of rivals
Differentiation Strategies: Keys to Success
Find ways to: 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
Differentiation Strategies: The Appeals
A powerful competitive approach when uniqueness can be achieved in ways that:
- buyers perceived as valuable
- rivals find hard to match or copy
- can be incorporated at a cost well below the price premium that buyers will pay
The Benefits of Successful Differentiation
a product/service with unique and appealing attributes allows a firm to:
- command a premium price
- increase unit sales
- build brand loyalty
all Create a Competitive Advantage
The Key to Competitive Advantages
Most approaches: those hardest for rivals to match or imitate, those buyers will find most appealing
Best choices for gaining longer-lasting, more profitable competitive edge:
- New product innovation
- technical superiority
- product quality and reliability
- comprehensive customer service
How to Achieve a Different-Based Advantage: Approach 1
incorporate product features/attributes that lower buyer’s overall costs of using product
How to Achieve a Different-Based Advantage: Approach 2
Incorporate features/attributes that raise the performance a buyer gets out of the product
How to Achieve a Different-Based Advantage: Approach 3
Incorporate features/attributes that enhance buyer satisfaction in non-economic or intangible ways
How to Achieve a Different-Based Advantage: Approach 4
compete on the basis of superior capabilities
