chapter 5, 6 strategic management

disadvantages of cost leader

-may suffer from perceptions of low quality -difficult to attract customers that are brand loyal; struggle in fragmented markets (Coke vs. Pepsi) -generally smaller profit margins- must sell a lot to make $$$ -a focus on costs may lead firms to be late- movers on key trends -similarly, a focus on efficiency may make it difficult to change

the most salient value drivers that managers have to improve their firm's strategic position are:

-product features -customer service -complements

characteristics of competitive advantage

cost- based, uniqueness- based

what defines a "narrow target market" varies across firms, including:

customer segment, sales channel

additional value is created by focusing on superior customer service and responsiveness

customer service

in addition to product quality, Chick- fil- A's focus on customer service adds value to their products

customer service

moves beyond differentiation by allowing customers to purchase customized products/ services

customization

describes improved efficiencies based on accumulated knowledge from experience

economies of learning

Savings that come from producing two (or more) outputs at less cost than producing each output individually

economies of scale

costs per unit of producing a product decreases a firms gain grater market share

economies of scale

rising costs does what?

erode profitability and reduce economic value created

McDonalds scrutinizes every element of their operation to reduce costs

cost- based

advantages of differentiation

-Ability to charge higher prices -Strong profit margins -Increased customer loyalty -Lower customer price sensitivities -Decreases competitiveness of new industry entrants

business level strategy broadly concerns the question "how should a firm compete?"

-WHO will we serve (customer segments) - WHAT customer needs/ desires will we satisfy? - WHY do we want to satisfy them? -HOW will we satisfy our own customers' needs?

disadvantages of differentiation

-can be risky if customers are not willing to pay premium prices -imitators may steal customers with look-alike products -depends on perceptions of value -customers may switch to low-cost alternative if economic conditions change

advantages of cost leader

-firms with higher market shares enjoy higher profits -can more easily endure pressure on prices such as during a price war

managers can adjust a number of different levers to improve a firm's strategic position by either:

-increasing perceived value (improve value position- mainly for differentiation strategy) -decreasing costs (improve cost position- mainly for low- cost strategy)

the focus of competition in differentiation strategy tends to be on:

-unique product features, service, and new product launches -market and promotion -NOT price

value drivers add value to a firm's offering ONLY IF the value creation...

EXCEEDS the increased costs

The goal of a differentiation strategy

add unique features to products in an effort to increase their perceived value

can effectively focus on exploration and exploitation

ambidextrous organizations

Toyota targets a wide range of customers with a variety of different products

broad target

characteristics of scope of operation

broad target or narrow target customer segment

Walmart's cost leadership strategy depends on attracting a large customer base and keeping prices low by buying massive quantities of goods from suppliers

broad target, cost

a goal- directed actions managers take in their quest for competitive advantage in a single product market -may involve (1) a single product (2) a group or similar products

business level strategy

AT&T U-Verse allows users to bundle services; Samsung products integrate easily

complements

add value to a product or service when consumed in tandem

complements

in value is increased,

consumers will pay a higher price

best cost: managers may find themselves in the position where they can attempt to integrate both ______ and _______ value positions

cost and value

access to lower- cost input factors such as raw materials, capital, labor, and IT services

cost of input factors

cost drivers inclue:

cost of input factors economies of scale learning- curve effects experience curve

captures both learning effects and process improvements that allow a firm to move to a new learning curve

experience curve

firms following a __________ strategy compete on price in a narrow target market

focused cost leadership

a ___________ strategy depends on offering unique features that fulfill needs of a narrow market

focused differentiation

are business- level strategies that can be deployed in any organization

generic strategies

describes any new product, process, or any modification of an existing product or process

innovation

as firms produce more units, they learn how to be more efficient

learning curve effects

firms learn how to do things better by doing them repeatedly over time

learning curve effects

_________ requires a structure that emphasizes cost control while ________ requires a structure that allows for creativity and customer responsiveness

low- cost position, differentiation

Ferrari offers only a few, high- priced options that target a much smaller segment of auto customers

narrow target

In using a focused cost leadership, Dollar General does not offer a full array of consumer goods, but those that it does offer are priced to move

narrow target, cost

Anthropologie follows a focused differentiation strategy by selling unique (and pricey) women's apparel, accessories, and home furnishings

narrow target, uniqueness

are a function of process innovations- which describe a new production method or technology that improves efficiency

process improvements

additional value is created by adding unique product features

product features

turns commodity products into differentiated products that command a premium price

product features

value drivers:

product features customer service complements

goal of cost leadership strategy

reduce the firm's cost below competitors costs while offering similar value

two competitive dimensions are key to business- level strategy

source of competitive advantage scope of operation

appropriate factors that support internal value chain activities that help firms integrate cost and value posisitons

structure, culture, and routines

Nordstrom builds its differentiation strategy around offering designer merchandise and providing exceptional service

uniqueness

Burgerfi incurs higher costs to offer customers a higher- quality product and unique dining experience

uniqueness- based