Slides 23 Flashcards
(56 cards)
What defines Competitive Advantage?
When a firm earns a higher rate of economic profit than the average rate of economic profit in its market.
Firms achieve a competitive advantage by creating and delivering more economic value than their rivals.
What framework is used to gauge the ability to create value?
Attractiveness of the market (gauged through P-5 analysis) and a firm’s cost/benefit position relative to its competitors.
P-5 analysis refers to the analysis of five competitive forces in an industry.
Define Maximum Willingness-to-Pay.
The most amount of money that a particular consumer is willing to pay for a product.
Willingness-to-pay varies between consumers based on tastes, values, preferences, and needs.
What is Consumer Surplus?
The amount of value that a consumer receives if a product is priced below their willingness to pay.
Consumers will purchase the product that gives them the highest consumer surplus.
Fill in the blank: The purpose of the _______ is to help firms identify operational strengths and weaknesses.
value chain
List the primary activities in Porter’s Value Chain.
- Inbound logistics
- Production operations
- Outbound logistics
- Marketing & Sales
- Service
These activities directly contribute to the production, sale, and support of the product or service.
What are the four support activities in Porter’s Value Chain?
- Firm infrastructure
- Human resource management
- Technology development
- Procurement
Support activities provide necessary infrastructure to support primary activities.
True or False: Consumer Surplus is always positive.
False
Consumers will never purchase a product that has a negative consumer surplus.
What is the impact of a firm’s unique value chain configuration?
It allows firms to generate more value than competitors.
A unique value chain can provide a competitive advantage.
Define Core Competencies.
Unique and rare capabilities that give a firm an advantage.
Core competencies can lead to superior performance in the marketplace.
What are the three different types of Cost Leadership?
- Benefit Parity
- Benefit Proximity
- Qualitatively Different
Each type describes a different way a company can offer lower costs compared to competitors.
Fill in the blank: A firm’s generic strategy describes how it _______.
positions itself
What is the significance of the Indifference Curve in Consumer Surplus?
It yields price-quality combinations that yield the same consumer surplus.
Points above the indifference curve lower consumer surplus, while points below offer higher consumer surplus.
How does the Value Creation formula work?
Consumer Surplus = B - P; Producer Surplus = P - C; Value Created = (B - P) + (P - C) = (B - C)
B represents the benefit a consumer expects, P is the product’s monetary price, and C is the cost to produce.
What happened to Southwest Airlines during the holidays of December 2022?
Their computers crashed due to too many passengers, resulting in the cancellation of 60% of their flights and a loss of $1.2 billion.
This illustrates a failure in support activities disabling primary activities.
What is the relationship between Value Creation and Competitive Advantage?
The seller whose product characteristics and price provide the greatest amount of consumer surplus will win.
Consumers will choose the product that creates the most value.
What is Benefit Parity?
Product has superior benefits or quality (B) as competitors but sold at the same price (P).
What is Benefit Proximity?
Product has significantly higher benefits or quality (B) than competitors but at a slightly higher price (P).
What strategy does Walmart use to achieve lower prices?
Economies of scale and extreme bargaining power with its suppliers.
True or False: Ryanair provides free meals on flights.
False.
Why are Ikea’s products cheaper than their competitors?
They offer affordable, stylish home furnishings.
What are the two types of Benefit Leadership?
- Benefit Parity
- Benefit Proximity
What are Benefit Drivers?
Types of benefits that help firms differentiate themselves.
What are examples of physical characteristics that can differentiate a product?
- Superior performance
- Quality
- Ease of use
