Chapter 4 Flashcards
What are the three dimensions that characterize firms’ relationships with customers?
Reach
Richness
Affiliation
What is Market Segmentation?
The process of dividing customers with similar needs into individual and identifiable groups
On what factors do firms segment Customer Markets?
Demographic
Socioeconomic
Geographic
Psychological
Consumption patterns
Perceptual
Which segments do firms use to segment Industrial Markets?
End-use
Product
Geographic
Common buying factor
Customer size
What are the four Business Level Strategies?
Cost Leadership
Differentiation
Focused Cost Leadership
Focused Differentiation
What defines Cost Leadership?
Produce products at low cost with acceptable features.
What ways can you achieve cost leadership?
Process Innovation
Inbound & Outbound logistics
Outsource Manufacturing
Why is having a low-cost position valuable when dealing with competitors?
It discourages rivals from competing on price, as they may not be able to match the cost leader’s efficiency.
What factors influence the level of rivalry faced by cost leaders?
Organizational size
Rivals’ resources
Market dependence
Location
Past competition
Customer reach
How do cost leaders try to reduce rivalry?
Forming joint ventures
Strategic alliances
Building strong stakeholder relationships.
How can powerful customers affect a cost leader’s pricing?
They can pressure cost leaders to lower prices but usually not below the level where competitors can stay profitable.
Why does a cost leader have an advantage when dealing with suppliers?
Higher margins allow the cost leader to absorb price increases or pressure suppliers to lower their prices.
How does cost leadership create a barrier to potential entrants?
New entrants must accept lower profits or match the cost leader’s efficiency to compete.
How does a cost leader defend against product substitutes?
By reducing prices while maintaining acceptable levels of differentiation.
What are the competitive risks of the cost leadership strategy?
Obsolescence: Rivals may develop innovations that lower costs further.
Customer dissatisfaction: Excessive cost-cutting may harm customer service.
Imitation: Competitors may copy the strategy, reducing the cost leader’s advantage.
What defines Differentiation?
The creation of of products perceived as unique in ways that customers value.
How does differentiation reduce rivalry with competitors?
Strong brand loyalty makes customers less sensitive to price changes, protecting firms from competition.
How does differentiation affect buyer power?
Buyers accept price increases if they believe no alternative meets their unique needs as well.
What role do suppliers play in differentiation?
They have power due to the need of high quality inputs.
But high margins help allow differentiators to absorb supplier cost increases.
Why do differentiated products create barriers for new entrants?
Customer loyalty and the need for significant investment make it difficult for new competitors to enter.
How do substitutes threaten differentiation?
If substitutes offer similar or superior value at a lower price, customers may switch brands.
What are risks of the differentiation strategy?
Overpricing
Customer perception shifts
Counterfeiting
Unclear differentiation
What’s the difference with focused strategies?
They target a specific market segment
What are the segmentation approaches? (3)
Target a specific buyer group
Focus on a product line segment
Target a geographic region
