MANA 4322 Ch. 5 Part 1

What are the integrated tactics for overall cost leadership?

1- Aggressive construction of efficient-scale facilities 2- Vigorous pursuit of cost reductions from experience 3- Tight cost and overhead control 4- Avoidance of marginal customer accounts 5- Cost minimization in all activities in the firm's value chain, such as R&D, service, sales force, and advertising***

What are the two variants to focus?

1- Cost focus 2- Differentiation focus

What is differentiation?

1- Create products and/or services that are unique and valued 2- Non-price attributes for which customers will pay a premium

Focus: Improving Competitive Position vis-à-vis the Five Forces?

1- Creates barriers of either cost leadership or differentiation, or both 2- Used to select niches that are least vulnerable to substitutes or where competitors are weakest

Differentiation: Improving Competitive Position vis-à-vis the Five Forces?

1- Creates higher entry barriers due to customer loyalty 2- Provides higher margins that enable the firm to deal with supplier power 3- Reduces supplier power due to prestige associated with supplying to highly differentiated products 4- Reduces buyer power because buyers lack suitable alternative 5- Establishes customer loyalty and hence less threat from substitutes 6- Because of customer loyalty, the firm is protected from rivalry

What are the main goals in the introduction stage?

1- Develop product and get users to try it 2- Generate exposure so product becomes "standard"

What are the pitfalls of focus strategies?

1- Erosion of cost advantages within the narrow segment 2- Focused products and services still subject to competition from new entrants and from imitation 3- Focusers can become too focused to satisfy buyer needs

What is focus strategy?

1- Firm targets a narrow target segment 2- Attain advantages either through differentiation or cost leadership

What are the characteristics of differentiation?

1- Firms may differentiate along several dimensions at once 2- Firms achieve and sustain differentiation and above-average profits when price premiums exceed extra costs of being unique 3- Successful differentiation requires integration with all parts of a firm's value chain 4- An important aspect of differentiation is speed or quick response

Pitfalls of Combination Strategies?

1- Firms that fail to attain both strategies may end up with neither and become "stuck in the middle" 2- Underestimating the challenges and expenses associated with coordinating value-creating activities in the extended value chain 3- Miscalculating sources of revenue and profit pools in the firm's industry

Companies pursuing a differentiation strategy?

1- Harley Davison 2- Apple

What is the life cycle of an industry?

1- Introduction 2- Growth 3- Maturity 4- Decline Emphasis on strategies, functional areas, value-creating activities, and overall objectives varies over the course of an industry life cycle

What is overall cost leadership?

1- Low-cost-position relative to a firm's peers 2- Manage relationships throughout the entire value chain

Companies pursuing an overall cost leadership strategy?

1- McDonalds 2- Wal-Mart

What are the three generic strategies to overcome the five forces and achieve competitive advantage?

1- Overall cost leadership 2- Differentiation 3- Focus strategy

What is parity on the basis of differentiation?

1- Permits a cost leader to translate cost advantages directly into higher profits than competitors 2- Allows firm to earn above-average profits 3- To be able to maintain its competitive is parity on the basis of differentiation.

Differentiation can take many forms:

1- Prestige or brand image 2- Technology 3- Innovation 4- Features 5- Customer service 6- Dealer network

Combination Strategies: Integrating Overall Low Cost and Differentiation?

1- Primary benefit of successful integration of low-cost and differentiation strategies is difficulty it poses for competitors to duplicate or imitate strategy 2- Goal of combination strategy is to provide unique value in an efficient manner

What are the strategies in the introduction stage?

1- Products are unfamiliar to consumers 2- Market segments not well defined 3- Product features not clearly specified 4- Competition tends to be limited 5- Generic Strategies: Differentiation

How does an overall low cost position protect a firm?

1- Protects a firm against rivalry from competitors 2- Protects a firm against powerful buyers 3- Provides more flexibility to cope with demands from powerful suppliers for input cost increases 4- Provides substantial entry barriers from economies of scale and cost advantages 5- Puts the firm in a favorable position with respect to substitute products

Companies pursuing a focus strategy?

1- Rolex 2- Lamborghini

What are the pitfalls of overall cost leadership strategies?

1- Too much focus on one or a few value-chain activities 2- All rivals share a common input or raw material 3- The strategy is imitated too easily 4- A lack of parity on differentiation 5- Erosion of cost advantages when the pricing information available to customers increases

What are the potential pitfall of differentiation strategy?

1- Uniqueness that is not valuable- 2- Too much differentiation 3- Too high a price premium 4- Differentiation that is easily imitated- 5- Dilution of brand identification through product-line extensions 6- Perceptions of differentiation may vary between buyers and sellers

What is the experience curve?

1- refers to how business "learns" to lower costs as it gains experience with production processes 2- with experience, unit costs of production decline as output increases in most industries

What is differentiation strategy?

A firm's generic strategy based on creating differences in the firm's product or service offering by creating something that is perceived industry-wide as unique and valued by customers.

Firms that successfully integrate differentiation and cost strategies obtain?

Advantages of competition from both approaches. 1- High entry barriers 2- Bargaining power over suppliers 3- Reduces power of buyers (fewer competitors) 4- Value position reduces threat from substitute products 5- Reduces the possibility of head-to-head rivalry

A firm following an overall cost leadership position must?

Attain parity on the basis of differentiation relative to competitors

High product differentiation is generally accompanied by?

Decrease emphasis on competition based on price

What is focus?

It is based on the choice of a narrow competitive scope within an industry 1- Firm selects a segment or group of segments (niche) and tailors its strategy to serve them 2- Firm achieves competitive advantages by dedicating itself to these segments exclusively

What is the industry life cycle?

Refers to the stages of introduction, growth, maturity, and decline that typically occur over the life of an industry

What is parity of differentiation?

When I meet minimum customer demand at a low price.