Corporate strategies and their applications

Question 1

What is price leadership?

Answer 1

• when a leading firm in an industry can exert enough influence in the sector that it can effectively determine the price of goods/services

–> monopolies, oligopolies

Question 2

What is interdependent pricing?

Answer 2

A sellers pricing strategy depends on the pricing strategy of other sellers in the market
–> oligopolies

Question 3

What is the prisoners dilemma?

Answer 3

Theory that shows why people might not cooperate even if it’s in their best interest to do so.

Question 4

Prisoners Dilemma applied to economics

Answer 4

1. interdependence
   - firms making decisions knowing that comeptitors will react
   - if they cooperate (e.g. keep prices high) –> all benefit
2. price leadership
   - one dominant firm sets the price and the others follow to avoid price wars
   - avoiding the dilemma by coopoerating without formal collusion

Question 5

What is the concentration strategy?

Answer 5

–> businesses focuses on specific group of clients, a specific product or a specific geographic market

Question 6

What is the purpose of the concentration strategy?

Answer 6

It allows the businesses to concentrate their efforts
–> likely to yield expertise, innovation abd efficiencies within the area of concentration

Question 7

What are the three sub-strategies in the concentration strategy?

Answer 7

1. Market Penetration
2. Market Development
3. Product Development

Question 8

What is market penetration?

Answer 8

• concentration stratgey
• gaining additional market share for the firms exsting products by extensive marketing campaign
  E.g. Coca-Cola and Pepsi

Monopoly: helps them maintain their market share and expand

Oligopoly: compete with each other and increase their market share

Question 9

What is market development?

Answer 9

• concentration strategy
• selling existing products in new markets (pursue new sale channels)
  e.g. new market by selling online or expanding into a forgein market
  Ex. Starbucks selling beans and bottled drinks in grocery stores

Question 10

What is product development?

Answer 10

• concentration strategy
• selling new products in existing markets
• involves creating new products to serve existing markets
  E.g. Disney 1940s expands its offerings by going beyond cartoons and creating movies featuring real actors

Question 11

What are they downsides of the concentration strategy?

Answer 11

• may concentrate on the wrong product and suffer major economic losses
• limited customers
• may gain competitors

Question 12

What is product differentiation?

Answer 12

• may distinguish an item though product design, marketing, packaging or pricing
• companies gain a competitive advantage and market share through product differentiation
• encourage consumers to choose one brand over another
• may also focus on niche markets

Question 13

What is the strategy used in product differentiation?

Answer 13

• may require adding new features
• may be simple redesigning of packaging
• sometimes no changes but new advertising campaigns

Question 14

What are the aims of product differentiation?

Answer 14

• create brand loyality /awareness
• potential for higher profits
• increasing competetive advantage
• otherwise the biggest competitor would alsways dominate due to economies of scale

Question 15

What are the types of product differentiation?

Answer 15

• price
• performance
• location of point of sale
• brand image or perception
• product innovation
• service level
• customer retention

Question 16

How do consumers choose

Answer 16

• vertical differentiation (based on objective/measurable factors, e.g. price, quality)
• horizontal differntiation (based on personal pferences, e.g. vanilla or chocolate)
• mixed differntiation (vertical and horizontal, e.g. quality and color)

Question 17

What is innovation strategy?

Answer 17

• plan used by a company to encourage advancements in techology or services
  –> investing in R&D
  –> stay ahead of competitors

Question 18

Push Innovation strategies

Answer 18

Innovation based on anticipation

• Proactive (strong research orientation, first-mover advantage; e.g. Apple with iPhone –> high risks because maybe invested in the wrong product)
• Active (stay with the current products but are ready to improve when new trends appear; e.g. Microsoft)

Question 19

Pull Innovation Strategies

Answer 19

Innovation absed on customer demand

• Reactive (follow other companies and copy proven ideas; e.g. Rayanair and Southwest Airlines)
• Passive (wait for customers to demand before making any changes ; e.g. supplier for automotive companies)

Question 20

What are potential downsides of the innovation strategy?

Answer 20

• innovation might not meet market needs
• expensive to invest in R&D and there is no guarantee
• risky, innovation might fail leading to major economic losses