Lecture 5 - Competitive Advantage Flashcards
(30 cards)
What are the two possible sources of competitive advantage?
Cost and differentiation
What are Porter’s 4 generic positions for firms?
Broad or Narrow
Cost Leadership or Differentiation
(All combinations)
What is differentiation?
Uniqueness in the product in some dimension that is appealing to the customer, not just anything.
When considering differentiation, what should be considered about the customer and other firms?
The needs of the customer
The abilities of competitors
What are the 3 ways to differentiate?
Product Qualities
Customer Relationships
Complements
What are three differentiating product qualities?
Brand
Quality
Limited edition
Country of origin
Sustainability
What are two differentiating customer relationship elements?
Convenience
Customer services and support
Customisation
What are utilitarian and hedonistic needs?
Utilitarian is a psychological need e.g. need to eat
Hedonistic is not, e.g. because it’s cool
Why are utilitarian and hedonistic needs important?
When considering how to augment products or services, it is important to consider what type of need you are meeting for the customer, so that the importance of the augmentation can be assessed.
How does competitive advantage get eroded?
Spending too much trying to gain the differentiation factor such that the price is too high for customers due to the cap on what they’re willing to pay.
Attempting to differentiate in irrelevant areas that don’t actually benefit the mainstream/main body of your targeted customers (e.g. Google docs vs Word)
What are 5 ways to achieve cost leadership?
Low input costs
Economies of scale
Experience
Product design
Process design
What is cost leadership?
A business strategy where a firm has lower than average costs that can be used to gain an increased profit margin compared to competitors. A firm aims for cost leadership in both its fixed and variable costs.
What is the minimum efficient plant size?
The point at which most scale economies are exhausted
Define learning effects.
Getting cheaper over time from technology advancement and experience. More production results in greater learning effects.
How can product and process design contribute to a cost leadership strategy?
More modular or efficient manufacturing can be faster or cheaper because specialisation can come later. Faster economies of scale and learning effects from potentially greater production. Training is simpler for employees. Simpler design means less components and potentially greater economies of scale on the few that are in the design.
What are the 7 drivers of cost advantage?
Capacity utilisation
Economies of scale
Learning effects
Production techniques
Product design
Input costs
Residual efficiency
What is residual efficiency?
Organisational slack, motivational culture and managerial efficiency are parts of residual efficiency
What factors make up capacity utilisation?
Ratio of fixed:variable costs
Speed of capacity adjustment
How can a cost leadership strategy go wrong?
Get caught in a race to the bottom with competitors where it is harder and harder to go lower.
Customers are likely to be mobile to switch to the lowest, so if someone else outdoes you, you’re out.
Cost leaders MUST be ____.
Big!
What do cost leaders mostly focus on in terms of redesign? Product or process?
Processes. E.g. making manufacturing cheaper by making it simpler and more efficient
What do differentiators mostly focus on in terms of redesign? Product or process?
Product. They want to keep it as distinctive as possible. E.g. reworking a recipe to make it appeal more to mainstream tastes or adding new flavours.
What is dual advantage and what is an example of a firm with dual advantage?
Dual advantage is the idea of having both cost and differentiation aspects. Ikea is an example.
When differentiating, what is important about how you redesign in terms of customers?
Choosing which customers you would like to cater for, and then also how you cater to them (needs and types of needs)
