Chapter 5

Question 1

What is the business level strategy about?

Answer 1

1. Whom a company wants to serve
2. What customer needs
3. Desires of the company to satisfy
4. how the company decides to satisfy those needs and desires

Question 2

What are the two basic ways a company chooses how to compete in a market

Answer 2

1. Lower costs
2. Differentiate product offered by competition to create more value

Question 3

What are the advantages of low costs

Answer 3

1. Enables company to make a profit at price points where rivals are losing money
2. Allow company to gain market share

Question 4

What is differentiation

Answer 4

Differing itself from rivals by offering things that are hard to match

Question 5

How do companies differentiate themselves

Answer 5

1. Superior reliability
2. Better designs
3. Superior functions and features
4. Better point of sale service
5. Better after sales service and support
6. Better branding

Question 6

What are the advantages of differentiation

Answer 6

1. Charge at a premium price
2. Help grow demand and capture market share from its rivals

Question 7

What is the trade off

Answer 7

Managers must make a choice between choosing basic ways of attaining a competitive advantage

Question 8

What does successful differentiation give

Answer 8

Options to managers to raise prices and cover any incremental increase in costs

Question 9

What is efficiency frontier

Answer 9

Shows different positions companies can adopt differentiation and low costs

Question 10

Why does the efficiency frontier have a convex shape

Answer 10

Diminishing returns

Question 11

What is diminishing returns

Answer 11

Company has significant differentiation built into its product, increasing more by a small amount requires significant additional costs

Question 12

What is market segmentation

Answer 12

Refers to the process of subdividing the market into clearly identifiable groups of customers with similar needs, desires and demand characteristics

Question 13

What type of customers are within the market segments

Answer 13

Relatively homogenous and differ in important ways from customers in other segments of the market

Question 14

What are the three approaches to market segmentation

Answer 14

1. Standardization strategy
2. Segmentation strategy
3. Focus strategy

Question 15

Which approach is associated with lower costs

Answer 15

Standardization strategy

Question 16

How can companies successfully implement a business level strategy and reach the efficiency frontier

Answer 16

1. Must pursue right functional level strategies and be organized
2. Business level strategy, functional level strategy and organizational arrangement must be all in alignment

Question 17

What is standardization strategy

Answer 17

Targets the average customer in that market

Question 18

What is segmentation strategy

Answer 18

Customize its product offering to different segments, producing multiple offers

Question 19

What is focus strategy

Answer 19

Target limited number of market segments or just one and become the very best at serving that particular segment

Question 20

What are the costs and revenues of standardization strategy

Answer 20

1. Associated with lower costs
2. Involves producing basic offerings and trying to attain economies of scale by achieving high volumes of sales

Question 21

What are the costs of segmentation strategy

Answer 21

1. Company sells less of each offering making it harder to achieve economies of scale
2. costs of production and delivery because products are aimed for higher income segments

Question 22

How can customization drive up costs

Answer 22

1. Company may sell less of offering
2. Products may require more functions and features

Question 23

What is a focus strategy for higher segments

Answer 23

Higher income = higher costs

Question 24

What is the focus strategy for lower segments

Answer 24

More basic offers that is inexpensive to produce and delivery

Question 25

What is broad low cost strategy

Answer 25

Company concentrates on lowering costs so that it can lower prices and make profit

Question 26

What is broad differentiation strategy

Answer 26

Company tries to differentiate its products in some way

Question 27

What is Focus low cost strategy

Answer 27

Company that targets a few segments or just one is pursuing a focus or niche strategy

Question 28

What is focus differentiation strategy

Answer 28

Company that tries to customize its product to the needs of a particular segment by adding features and functions

Question 29

What is the goal of companies to ward off competition

Answer 29

Brand loyalty

Question 30

Who is the originator of the generic business level strategy

Answer 30

Michael Porter

Question 31

What is differentiation according to Michael Porter

Answer 31

Raises costs and makes it impossible to attain the low cost position in the industry

Question 32

Why must companies have an alignment between business level, functional and organizational strategy

Answer 32

So that structure, control systems, incentive systems and culture are emphasized and reward employee behaviors are consistent with higher productivity and greater efficiency

Question 33

How can low costs make it hard for rivals to enter its market and be a substitute

Answer 33

Creates a cost that is hard for other businesses to match, protect a company against a substitute against goods or services

Question 34

What protects successful differentiators from competitive forces

Answer 34

1. Brand loyalty 2. Non price factors are important to its customers 3. Be protected from substitutes

Question 35

What do low cost positions of functional level strategies result to

Answer 35

Superior efficiency and superior product reliability

Question 36

Why must low cost firms be organized

Answer 36

Structure, control, incentives systems, culture and employees are consistent with higher productivity and greater efficiency

Question 37

What does superior quality bring

Answer 37

Emphasis on innovation, customer responsiveness, reliability and excellence

Question 38

What specific functional level strategies improve differentiation

Answer 38

1. Customization and marketing mix 2. Design high quality products that increase reliability 3. Well developed customer care function 4. Marketing efforts focused on brand building and perceived differentiation 5. Hiring employees that align with the image of the company

Question 39

What is value innovation

Answer 39

Figures out ways to offer more value through differentiation at a lower cost

Question 40

What is blue ocean

Answer 40

Characterization of the open market space where a company can chart its course

Question 41

What is eliminating in searching for a blue ocean

Answer 41

Look for eliminating factors that rivals take for granted and reduce costs

Question 42

What is reducing in searching for a blue ocean

Answer 42

Look for factors that should be reduced well below the industry standard to lower costs

Question 43

What is raise in searching for blue ocean

Answer 43

Look for factors that should be raised above industry standard to increase value

Question 44

What is create in searching for blue ocean

Answer 44

Look for factors that can be created that rivals don't offer and increase value

Question 45

What do companies believe in blue ocean strategy

Answer 45

1. To be a wide open market space where a company can chart its own course 2. Present opportunities for untapped revenues

Question 46

What are some strategies surrounding blue ocean strategy

Answer 46

1. Create uncontested market spaces 2. Make the competition irrelevant 3. Focus non customers 4. Create and capture new demand

Question 47

What is value innovation

Answer 47

Describes what happens when innovation is pushed out the efficiency frontier in an industry

Question 48

What are the advantages of successful value innovation

Answer 48

1. Makes it hard for competitors to catch up 2. Result to sustained competitive advantage

Question 49

Why can't low cost and differentiation strategies may not work together

Answer 49

Different ways of competing