Chapter 6

Question 1

Whats a blue ocean strategy?

Answer 1

A business level strategy that successfully combines differentiation and cost-leadership activities using value innovation to reconcile the inherent trade-offs.

Question 2

Whats a business level strategy and what are the 4 steps of it?

Answer 2

A business-level strategy details the goal-directed actions managers take in their quest for competitive advantage when competing in a single product market. It answers the question “How should we compete?” To formulate an appropriate business-level strategy, managers should answer the following questions:

(1) Who – which customer segments will we serve?
(2) What customer needs, wishes, and desires will we satisfy?
(3) Why do we want to satisfy them?
(4) How will we satisfy our customer’s needs?

Question 3

What are strategic trade-offs?

Answer 3

Choices between a cost or value position

Question 4

What are the two generic business strategies?

Answer 4

(1) A differentiation strategy, which seeks to create higher value for the customers than the value that the competitors create (such as products or services with unique features), while containing costs.
(2) A cost-leadership strategy, which seeks to create the same or similar value for customers at a lower cost.
These are called generic business strategies because they can be used by all organizations.

Question 5

What are the three main value drivers?

Answer 5

(1) Product Features. Adding product attributes allow firms to turn commodity products into differentiated products commanding a premium price. (This often requires strong R&D.)
(2) Customer Service. By focusing on customer service, a firm can increase their perceived value.
(3) Complements add value to a product or service when they are consumed in tandem . The best example of complements is cell-phones and cellular service. One without another wouldn’t make any sense.

Question 6

Whats the goal of a cost-leadership strategy?

Answer 6

The goal of cost-leadership strategy is to reduce the firm’s cost below that of its competitors while offering adequate value. A company that uses a cost-leadership strategy can achieve competitive advantage as long as its economic value created (V – C) is superior than its competitors

Question 7

What does a learning curve look like?

Answer 7

Our learning curve, no matter what it is about, is always downward sloping. It takes less and less time to produce something as we learn how to be more efficient in it. The steeper the learning curve, the more learning as occurred

Question 8

Whats the experience curve?

Answer 8

When using the experience curve, we change the underlying technology while holding cumulative output constant. In general, technology and production processes do not stay constant. Process innovation – a new method or technology to produce an existing product – may initiate a new and steeper learning curve.

Question 9

What is value innovation?

Answer 9

Value innovation is the simultaneous pursuit of differentiation and low cost in a way that creates a leap in value for both the firm and the consumers; considered a cornerstone of blue ocean strategy

Question 10

Which four questions must be asked when formulating a blue ocean strategy

Answer 10

(1) Eliminate. Which of the factors that the industry tales for granted should be eliminated?
(2) Reduce. Which of the factors should be reduced well below the industry’s standard?
Value Innovation – Increase Perceived Consumer Benefits
(3) Raise. Which of the factors should be raised well above the industry’s standard?
(4) Create. Which factors should be created that the industry has never offered?