MAN 4720 CH.6

Focused differentiation strategy:

Same as the differentiation strategy except with a narrow focus on a niche market. EX.) Mont Blanc offering exquisite pens—what it calls "writing instruments"—priced at several hundred dollars.

economies of scope:

Savings that come from producing two (or more) outputs at less cost than producing each output individually, despite using the same resources and technology.

What causes per-unit cost to drop as output increases? Economies of scale allow firms to:

Spread their fixed costs over a larger output. Employ specialized systems and equipment. Take advantage of certain physical properties.

a cost leader still needs to offer products and services of:

acceptable value EX.) GM and Korean car manufacturer Kia offer some models that compete directly with one another, yet Kia's cars tend to be produced at lower cost, while providing a similar value proposition.

generic strategies:

can be used by any organization—manufacturing or service, large or small, for-profit or nonprofit, public or private, domestic or foreign—in the quest for competitive advantage, independent of industry context.

strategic trade-offs:

choices between a cost or value position.

A business strategy is more likely to lead to a competitive advantage if a firm has a clear strategic profile, either as:

differentiator or a low-cost leader.

A company that uses a differentiation strategy can achieve a competitive advantage as long as its:

economic value created (V − C) is greater than that of its competitors.

A cost leader can achieve a competitive advantage as long as its:

economic value created (V—C) is greater than that of its competitors.

Cost leader

focuses its attention and resources on reducing the cost to manufacture a product or deliver a service in order to offer lower prices to its customers. and also attempts to optimize all of its value chain activities to achieve a low-cost position

The most important cost drivers that managers can manipulate to keep their costs low are:

Cost of input factors. Economies of scale. Learning-curve effects. Experience-curve effects.

economies of scale

Decreases in cost per unit as output increases.

differentiation strategy:

Generic business strategy that seeks to create higher value for customers than the value that competitors create. By delivering products or services with unique features while keeping costs at the same or similar levels, allowing the firm to charge higher prices to its customers

Cost-leadership strategy:

Generic business strategy that seeks to create the same or similar value for customers at a lower cost enabling the firm to offer lower prices to its customers.

diseconomies of scale:

Increases in cost per unit when output increases. As firms get too big, the complexity of managing and coordinating raises the cost, negating any benefits to scale

minimum efficient scale (MES)

Output range needed to bring down the cost per unit as much as possible, allowing a firm to stake out the lowest-cost position that is achievable through economies of scale.

the most salient value drivers that managers have at their disposal:

Product features Customer service Complements

Focused cost-leadership strategy:

Same as the costleadership strategy except with a narrow focus on a niche market. ex.) BIC designing and producing disposable pens and cigarette lighters at a low cost

business-level strategy:

The goal-directed actions managers take in their quest for competitive advantage when competing in a single product market.

scope of competition:

The size-narrow or broad-of the market in which a firm chooses to compete.

To formulate an appropriate business-level strategy, managers must answer:

Who—which customer segments will we serve? What customer needs, wishes, and desires will we satisfy? Why do we want to satisfy them? How will we satisfy our customers' needs?

competitive advantage is determined jointly by:

industry and firm effects.

Being stuck in the middle of different strategic positions is a recipe for:

inferior performance and competitive disadvantage

The goal of a differentiation strategy:

is to add unique features that will increase the perceived value of goods and services in the minds of consumers so they are willing to pay a higher price.

To achieve a desired strategic position, managers must:

make strategic trade-offs

The goal of a cost-leadership strategy is to:

reduce the firm's cost below that of its competitors while offering adequate value.

The greater the economic value created (V − C):

the greater is a firm's potential for competitive advantage.

At the firm level, performance is determined by:

value and cost positions relative to competitors