MGT 3830 Test 3 Chapt 5b

When employing a cost leadership strategy, a firm must be careful not to use what?

Aggressive price cuts that their own profits are low or nonexistant

According to Porter, which strategy offers products or services to a small range of customers at the lowest price available on the market? A. Low-cost B. best-value C. low-cost focus D. best-value focus E. differentiation

C. low-cost focus

Examples of firms that use Type 5 Strategy

Cannondale, Maytag and Lone Star restaurants, bed-and-breakfast inns, and local retail boutiques

Example of a secondary buyout:

Clayton, Dubilier and Rice recently buying David's Bridal from Leonard Green & Partners LP

A differentiation strategy can only be achieved with a small target market. (T/F)

F

Gaining a differentiation advantage is a primary reason for pursuing forward, backward, and horizontal integration strategies. (T/F)

F

Jiffy Lube International would be a good example of a firm seeking the best-value focus strategy (T/F)

F

For consumers who are price sensitive, cost leadership emphasizes producing standardized products at very low per-unit cost. (T/F)

T

Which of Michael Porter's strategies can be pursued with either a small target or large target market?

Type 3 Differentiation strategy

Differentiation strategy should be pursued only after:

a careful study of buyers' needs and preferences to determine the feasibility of incorporating one or more differentiating features into a unique product that features desired attributes

Type 3 Differentiation Strategy

a strategy aimed at producing products and services considered unique industry-wide and directed at consumers who are relatively price-insensitive

Joint Venture

a strategy that occurs when two or more companies form a temporary partnership/consortium/business for the purpose of capitalizing on some opportunity

Why joint ventures and cooperative arrangements are being used:

allow companies to improve communications and networking, to globalize operations, and to minimize risk

When two organizations of about equal size unite to form one enterprise, which of these occurs? A. hostile takeover B. merger C. acquisition D. LBO E. divestiture

b. merger

Type 5 Focus Strategy

best value focus that offers products and services to a niche group at the best price value available on the market--"focused differentiation"--aims to offer products or services that meet customers tastes and requirements better than rivals' products do

What cost elements affect the relative attractiveness of generic strategies?

economies or diseconomies of scale achieved, learning and experience curve effects, the percentage of capacity utilization achieved, and linkages with suppliers and distributors

Type 4 Focus Strategy

low cost focus strategy that offers products or services to a niche group of customers at the lowest price available on the market

Key reasons (9) why many mergers and acquisitions fail:

1. Integration difficulties 2. Inadequate evaluation of target 3. Large or extraordinary debt 4. Inability to achieve synergy 5. Too much diversification 6. Managers overly focused on acquisitions 7. Too large an acquisition 8. Difficult to integrate different organizational cultures 9. Reduced employee morale due to layoffs and relocations

Common problems that cause joint ventures to fail:

1. Managers who must collaborate daily in operating the venture are not involved in forming or shaping the venture 2. The venture may benefit the partnering companies, but may not benefit customers who then complain about poorer service, or criticize the companies in other ways 3. The venture may not be supported equally by both partners 4. The venture may begin to compete more with one of the partners than the other

Two ways to employ cost leadership strategies successfully

1. Perform value chain activities more efficiently than rivals and control the factors that drive the costs of value chain activities--eliminate extra costs and unnecessary charges 2. Revamp the firm's overall value chain to eliminate or bypass some cost-producing activities

Type 2 Cost leadership Strategy

Best-value strategy that offers products or services to a wide range of customers at the best price-value available on the market, compared to rival's products with similar attributes, encourages upgrading

Cost leadership strategy

In order to employ this strategy successfully, a firm must ensure that its total costs across its overall value chain are lower than competitors' total costs

How must companies employing a type 1 or 2 cost leadership strategy achieve their competitive advantage?

In ways that are difficult for competitors to copy or match

Generic Strategies

Michael Porter's strategy breakdown; consists of three strategies: cost leadership, differentiation and focus

Differentiation

Michael Porter's strategy dimensions that involves a firm producing products and services considered unique industry-wide and directed at consumers who are relatively price-insensitive

Does differentiation guarantee competitive advantage?

No

First mover advantage refers to the benefits a firm may achieve by entering a new market or developing a new product or service prior to rival firms. (T/F)

T

In a turbulent, high-velocity market, a lead-change strategy is best whenever the firm has the resources to pursue this approach. (T/F)

T

Joint ventures tend to fail when managers who must collaborate daily in operating the venture are not involved in forming or shaping the venture. (T/F)

T

The most effective differentiation bases are those that are hard or expensive for rivals to duplicate. (T/F)

T

When an acquisition or merger is not desired by both parties, it is called a takeover or hostile takeover. (T/F)

T

When companies take over functional operations of other firms, such as human resources, information systems, payroll, accounting, or customer service, this is called A. marketing B. outsourcing C. licensing D. franchising E. divestiture

b. outsourcing

According to journalists findings, what is a serious obstacle for many small business owners? A. lack of business ethics B. an excess of employees and managerial staff C. lack of experience in networking D. a lack of strategic-management knowledge E. having too many suppliers

d. a lack of strategic-management knowledge

Which of the following is not a reason joint ventures fail? A. managers who must collaborate daily in operating the venture are not involved in forming or shaping the venture B. The venture may not be supported by both partners C. the venture may benefit the partnering companies but may not benefit the customers who then complain about poorer service or criticize the companies in other ways. D. Stakeholders from both partners are equally satisfied E. the venture may begin to compete more with one of the partners or the other

d. stakeholders from both partners are equally satisfied

what should cost leadership generally be pursued in conjunction with?

differentiation

What type of products are best for differentiation strategies?

durable products protected by barriers to quick copying

Cost Leadership

emphasizes producing standardized products at very low per-unit cost for consumers who are price-sensitive (not all customers are price sensitive)

What is a primary reason for pursuing forward, backward, and horizontal integration?

gain low cost or best value cost leadership

A major reason why firms are using partnering as a means to achieve strategies is:

globalization

friendly merger

if the merger/acquisition is desired by both firms

takeover/hostile takeover

if the merger/acquisition is not desired by both firms

Cooperative arrangements

includes joint ventures, research and development partnerships, cross-distribution agreements, cross-licensing agreements, cross-manufacturing agreements, and joint-bidding consortia

Turbulent, high-velocity markets

industries that are changing very fast, such as telecommunications, medical, biotechnology, pharmaceuticals, computer hardware, software and virtually all internet-based industries

A successful focus strategy depends on an:

industry segment that is of sufficient size, has good growth potential and is not crucial to the success of other major competitors

First Mover Advantages

the benefits a firm may achieve by entering a new market or developing a new product or service before rival firms.

Why joint ventures and partnerships are being used

to pursue an opportunity that is too complex, uneconomical, or risky for an single firm to pursue alone

white knight

when a firm agrees to acquire another firm at a point in time when that other firm is facing a hostile takeover by some company

acquisition

when a large organization purchases (acquires) a smaller firm; a merger

Secondary buyout

when private-equity firms buying companies from other private-equity firms

Dividend recapitalization

when private-equity firms especially, but other firms also, borrow money to fund dividend payouts to themselves

leveraged buyout (LBO)

when the outstanding shares of a corporation are bought by the company's management and other private investors using borrowed funds

merger

when two organizations about equal size unite to form one enterprise; an acquisition

A cost leadership strategy can be especially effective when most buyers use the product in the same way. (T/F)

T

A leveraged buyout occurs when a firm's management and other private investors use borrowed funds to buy out the firm's share holders. (T/F)

T

A low-cost focus strategy offers products or services to a small range of customers at the lowest price available on the market. (T/F)

T

An acquisition occurs when a large organization purchases a smaller one or vice versa. (T/F)

T

Cooperative arrangements and joint ventures between competitors are becoming increasingly popular (T/F)

T

Means for achieving strategies:

1. Cooperation among competitors 2. Joint Venture/Partnering 3. Merger/Acquisition 4. Private-Equity Acquisitions 5. First mover advantages 6. Outsourcing/Reshoring

Successful differentiation

1. greater product flexibility 2. greater compatibility 3. lower costs 4. improved service 5. less maintenance 6. greater convenience 7. more features

Successful cost leadership strategy is proven by:

1. high efficiency 2. low overhead 3. limited perks 4. intolerance of waste 5. intensive screening of budget requests 6. wide spans of control 7. rewards linked to cost containment 8. broad employee participation in cost control efforts

Risks of pursuing a focus strategy:

1. possibility that numerous competitors will recognize the successful focus strategy and copy it 2. consumer preferences will drift toward the product attributes desired by the market as a whole

Risks of pursuing a differentiation strategy

1. the unique product may not be valued highly enough by customers to justify a higher price 2. competitors may quickly develop ways to copy the differentiating features

What occurs when two or more companies form a temporary partnership or consortium for the purpose of capitalizing on some opportunity? A. Retrenchment B. A joint venture C. Liquidation D. Forward integration E. Divestiture

B. a joint venture

Under which strategy would you offer products or services to a wide range of customers at the lowest price available on the market? A. Low-cost B. best-value C. low-cost focus D. best-value focus E. differentiation

B. best-value

Under which condition would a differentiation strategy be especially effective? A. when the target market niche is large, profitable and growing B. When technological change is fast paced and competition revolves around rapidly evolving product features C. when industry leaders do not consider the niche to be crucial to their own success D. when the industry has many different niches and segments, thereby allowing a company to pick a competitively attractive niche suited to its own resources E. When few, if any, other rivals are attempting to specialize in the same target segment.

B. when technological change is fast paced and competition revolves around rapidly evolving product features

Which strategy is not effective in a small market due to small profit margins?

Cost leadership strategy

What does Porter stress that strategists perform to evaluate "sharing opportunities" among a firm's existing and potential business units?

Cost-benefit analysis

Type of basis smaller firms often compete on

Focus

Which strategy is not effective in a large market because economies of scale generally favor a low-cost or best-value cost leadership strategy to gain or sustain competitive advantage?

Focus strategy

Buyers won't pay for the higher differentiation price unless:

Perceived value > Price

Examples of firms that use the Type 4 strategy

Jiffy Lube International, Pizza Hut, local used car dealers, hot dog restaurants

Cooperation among competitors

Joining forces with competitors in order to succeed and learn from the partner

Type 1 Cost leadership Strategy

Low-cost strategy that offers products or services to a wide range of customers at the lowest price available on the market

Focus

one of Michael Porter's strategy dimensions that involves a firm producing products and services that fulfill the needs of small groups of consumers

Benefits of a firm being the first mover:

1. Secure access and commitments to rare resources 2. Gain new knowledge of critical success factors and issues 3. Gain market share and position in the best locations 4. Establish and secure long-term relationships with customers, suppliers, distributors, and investors 5. Gain customer loyalty and commitments

Common organizational requirements for a successful differentiation strategy

1. Strong coordination among the R&D and marketing functions 2. substantial amenities to attract scientists and crative people

Potential benefits (8) of merging with or acquiring another firm:

1. To provide improved capacity utilization 2. To make better use of the existing sales force 3. To reduce managerial staff 4. To gain economies of scale 5. To smooth out seasonal trends in sales 6. To gain access to new suppliers, distributors, customers, products, and creditors 7. To gain new technology 8. To reduce tax obligations

6 Guidelines for when a joint venture may be an especially effective means for pursuing strategies are:

1. When a privately-owned organization is forming a joint venture with a publicly-owned organization; there are some advantages to being privately held, such as closed ownership; there are some advantages of being publicly held, such as access to stock issuance as source of capital. 2. When a domestic organization is forming a joint venture with a foreign company; a joint venture can provide a domestic company with the opportunity for obtaining local management in a foreign country, thereby reducing risks such as expropriations and harassment by host country officials. 3. When the distinct competencies of two or more firms complement each other especially well. 4. When some project is potentially profitable but requires overwhelming resources and risks. 5. When two or more smaller firms have trouble competing with a large firm 6. When there exists a need to quickly introduce new technology

Conditions in which Type 1 or Type 2 cost leadership strategies can be especially effective (7)

1. When price competition among rival sellers is especially vigerous 2. When products of rival sellers are essentially identical and suppliers are readily available from any several eager sellers 3. When there are few ways to achieve product differentiation that have value to buyers 4. When most buyers use the product in the same ways 5. When buyers incur low costs in switching their purchases from one seller to another 6. When buyers are large and have significant power to bargain down prices 7. When industry newcomers use introductory low prices to attract buyers and build a customer base.

A Type 4 or Type 5 focus strategy can be especially attractive under the following conditions:

1. When the target market niche is large, profitable, and growing 2. When industry leaders do not consider the niche to be crucial to their own success 3. When industry leaders consider it too costly or difficult to meet the specialized needs of the target niche while taking care of their mainstream customers 4. When the industry has many different niches and segments, thereby allowing a focuser to pick a competitively attractive niche suited to its own resources 5. When few,if any,other rivals are attempting to specialize in the same target segment.

A Type 3 Differentiation Strategy can be especially effective under the following conditions:

1. When there are many ways to differentiate the product or service and many buyers perceive these differences as having a higher value 2. when buyer needs and uses are diverse 3. When few rival firms are following a similar differentiation approach 4. When technological change is fact paced and competition revolves around rapidly evolving product features

Risks of pursuing cost leadership

1. competitors may imitate the strategy--driving overall profits down 2. technological breakthroughs in the industry may make the strategy ineffective 3. buyer interest may swing to other differentiating features besides price

Mergers and acquisitions are created for all of the following reasons except to A. gain new technology B. reduce tax obligations C. gain economies of scale D. smooth out seasonal trends in sales E. increase its number of employees

E. increase its number of employees

All of the following are cooperative arrangements except: A. R&D partnerships B. joint-bidding consortia C. cross-licensing agreements D. cross-manufacturing agreements E. marketing plans

E. marketing plans

Under which condition would a cost leadership strategy be especially effective? A. When there are many ways to differentiate the product or service and many buyers perceive these differences as saving value. B. When buyer needs and uses are diverse C. When few rival firms are following a similar approach D. When technological change is fast paced and competition revolves around rapidly evolving product features. E. When the products of rival sellers are essentially identical and suppliers are readily available from any of several eager sellers.

E. when the products of rival sellers are essentially identical and suppliers are readily available from any of several eager sellers

A best-value strategy offers products or services to a wide range of customers at the lowest price on the market (T/F)

F

A differentiation strategy can be especially attractive when the industry has many different niches and segments, thereby allowing a focuser to pick a competitively attractive niche suited to its own resources. (T/F)

F

According to Porter, strategies allow organizations to gain competitive advantage from three different bases: cost leadership, differentiation and integration. (T/F)

F

Companies are avoiding outsourcing more and more because it is more expensive than traditional methods and it does not allow a firm to concentrate on core competencies. (T/F)

F

Divestiture would be an appropriate strategy when a need exists to introduce a new technology quickly. (T/F)

F

Which strategy be most appropriate when the distinctive competencies of two or more firms complement each other especially well? A. Conglomerate diversification B. divestiture C. joint venture D. retrenchment E. integration

c. joint venture

First mover advantages tend to be greatest when:

competitors are roughly the same size and possess similar resources

Focus strategies are most effective when:

consumers have distinctive preferences or requirements and when rival firms are not attempting to specialize in the same target segment

Types of basis larger firms with greater access to resources typically compete on

cost leadership or differentiation

According to Michael Porter, strategies allow organizations to gain competitive advantage from three different bases:

cost leadership, differentiation, and focus