Strategic Mgt test 2

what are blue oceans?

the unknown market space, untainted by competition - e.g., eBay, Cirque du Soleil - demand is created rather than fought over -create value in two ways 1. increase customer willingness to pay while delivering valued services at lower cost 2. expand the addressable market

goal-directed actions how should we compete?

to achieve competitive advantage in a single product market Who: which customer segments? • What: customer needs will we satisfy? • How: will we satisfy our customers' needs?

advertising model

where for a fee, firms provide advertisers with high-quality access to their target customers—Google and Pinterest are examples of firms using this business model

what are red oceans?

-the known market space - outperform rivals to grab a greater share of existing demand

About six months ago, a mid-sized manufacturer of athletic shoes decided to pursue an integrated cost leadership/differentiation strategy. The company reduced its internal costs by consolidating the number of colors and variations it offers to customers, savings that the company passed on to consumers. At the same time, the research and development (R&D) team added a patented sole to all of its shoes. Which of the following represents the best argument for the company to continue pursuing its current business-level strategy?

"its true we've seen our net sales decline, but our gross profit has increased and our volumes are up year over year. our patent for the sale has been approved and the legal department says were good to go on our advertising claims about the new sole. "

With focus strategies, the firm

"selects a segment or group of segments in the industry and tailors its strategy to serving them to the exclusion of others."

other questions for mapping consumption chain

- How is your product/service paid for? - What if customers are not satisfied and need a return or exchange? - What is your product really used for (what "job" does the consumer want done)? - What do consumers need help with when they use the product? - Butterball's 24-hour Turkey Talk-Line - How is your product repaired, service, disposed of? - Otis Elevator, RC Willey

economies of scale

- a reduction in costs per unit due to increases in efficiency of production as the number of goods being produced increases.

Differentiation and Cost leadership

- differentiation can be a means to achieve a low-cost position - Intel - Apple iPod - deliver both differentiation and low-cost simultaneously - Uber

what is a business model?

- plan and set of activities to offer unique value and generate revenue -e.g., Amazon

what is a value chain?

- sequence of all activities to turn raw materials into the finished product that is sold to a buyer -e.g., Ryanair, Panasonic

When a low-cost strategy works best?

-Price competition among rival sellers is strong. • Identical products are available from many sellers. • There are few ways to differentiate industry products. • Markets with many price-sensitive buyers

the affiliation dimension of relationships with customers

-concerned with facilitating useful interactions with customers. -Viewing the world through the customer's eyes and constantly seeking ways to create more value for the customer have positive effects in terms of affiliation. -This approach enhances customer satisfaction and has the potential to result in fewer customer complaints. -ex: Walmart now delivers groceries to those who order items online and then come to the store to receive their items from an employee who brings them to their vehicle. The firm is also testing delivering food to customers' refrigerators. Demonstrating potentially positive outcomes from further affiliation with customers is the view of Walmart officials who believe that "the 'high touch' approach of online grocery ordering is improving people's opinion of the shopping experience at its stores, making them more likely to purchase general merchandise in addition to food."

the richness dimension of relationships with customers

-concerns the depth and detail of the two-way flow of information between the firm and customers. -The potential of the richness dimension to help the firm establish a competitive advantage in its relationship with customers leads many firms to offer online services as a means of superior management of information exchanges with them. -Broader and deeper information-based exchanges allow firms to improve their understanding of customers and their needs. -Such exchanges also enable customers to become more knowledgeable about how the firm can satisfy them. -Internet technology and e-commerce transactions, which are part of a firm's digital strategy, have substantially reduced the costs of meaningful information exchanges with current and potential customers.

what is market segmentation?

-process of dividing customers into groups based on their needs. -Market segmentation is a process used to cluster customers with similar needs into individual and identifiable groups

Competitive Risks of the Cost Leadership Strategy

1. One risk is that the processes used by the cost leader to produce and distribute its product could become obsolete because of competitors' innovations. may allow rivals to produce products at costs lower than those of the original cost leader, or to provide additional differentiated features without increasing the product's price to customers. 2. second risk is that too much focus by the cost leader on cost reductions may occur at the expense of trying to understand customers' perceptions of "competitive levels of differentiation 3. Imitation is a final risk of the cost leadership strategy. Using their own core competencies, competitors sometimes learn how to imitate the cost leader's strategy. When this happens, the cost leader must increase the value its product provides to customers. the cost leader increases the value it creates by selling the current product at an even lower price or by adding differentiated features that create value for customers while maintaining price

the four actions framework

1. Which of the factors that the industry takes for granted should be eliminated? 2. Which factors should be reduced well below the industry's standard? 3. Which factors should be raised well above the industry's standard? 4. Which factors should be created that the industry has never offered? reduce, create, raise, eliminate

when selecting a business level strategy, the firm determines

1. who will be served, 2. what needs those target customers have that it will satisfy, and 3. how those needs will be satisfied. Our discussion about customers shows that all organizations must use their capabilities and core competencies (the how) to satisfy the needs (the what) of the target group of customers (the who) the firm has chosen to serve.

strategic position

A firm business level strategy determines its strategic position is a specific product market - strategic profile based on value creation and cost how to compete: value and cost

Differentiation Strategy

A strategy whereby companies attempt to gain competitive advantage by offering value that is not available in other products or services or that other products do not do as well. Facebook vs MySpace and Friendstar - exclusivity - privacy - simplicity and standard appearance product differentiation is always a matter of customer perception

which of the following might be an alternative definition of business-level strategy? a. picture of what the firm wants to be in broad terms and what it hopes to achieve b. a plan for how the company will compete in its industry against its rivals to achieve a competitive advantage c. the inputs into a firms production process, including physical, human, and organizational capital d. source of competitive advantage for a firm to deliver above-average returns

B

sources of product differentiation: Superior Product Features

Does a better job on existing features - iPod vs Discman - Nordstrom Does more jobs than other products - Facebook: relationship status - iPhone: FaceTime, selfies Does a unique job that nothing else does - Propecia: grow hair - Disney: see Mickey Mouse - Nike: customizable shoes

sources of cost advantage

Economies of Scale or Scope Learning and Experience Proprietary Knowledge Input Costs Different Business Model

sources of product differentiation: brand image

Exposure effect -Jell-O - Kleenex Prestige brands - Louis Vuitton, Versace, Rolex, or Chanel - Lexus or Infiniti - Toyota Prius

what is customer segmentation?

Grouping customers based on similar needs - decide which customer segments you think you can best serve—and which segments deserve little (or no) attention ex: - Facebook -Product attributes - Honda vs Harley-Davidson -Demographic/customer attributes - age, income, education, profession, etc. -Job to be done - functional: do something that is desired - social: be perceived a certain way by others - emotional: feel something that is desired

Strategic Use of the Curves

Growth/Investment Strategy -steep curve - grow as fast, or faster, than their rivals - take whatever action to become a market-share leader Pricing Strategy - higher unit volumes produce lower costs per unit - price product or service aggressively low now; e.g., Hyundai Cost-Management Strategy - assess a company's relative cost position Acquisition Strategy - Predict cost synergies; e.g., Guest Tek

what is mapping the consumption chain?

Identify all the steps through which customers pass, from the time they first become aware of your product to the time when they finally have to dispose of it or discontinue using it How do consumers become aware of a need for your product/service? - Oral-B - How do consumers find your offering? - Coke, REI, Starbucks - How do consumers make their final selections (priority of attributes)? -side-by-side comparison - How do consumers order and purchase your product? -Amazon.com, Starbucks - How is your product/service delivered

Proprietary Knowledge

Information that is not public and that is viewed as the property of the holder -achieve a cost advantage due to proprietary knowledge that is independent of scale or output - e.g., Toyota Production System

Lower Input Costs

Inputs: - Resources such as people, raw materials, energy, information, or financing that are put into a system to obtain a desired output Four primary ways: - Bargaining Power over Suppliers e.g., Walmart - Cooperation with Suppliers e.g., Toyota - Location Advantages e.g., Nike - Preferred Access to Inputs e.g., Aramco

sources of product differentiation: convenience

Make it easier for customers to find/buy the product - Starbucks - Coke and Pepsi Easier purchase - Amazon.com: one-stop shop - Walmart Size of the network or ecosystem - Facebook - Venmo - LinkedIn

Risks of a low -cost strategy

Overly aggressive price cutting that does not result in unit sales gains sufficient to recoup forgone profits • Relying on a cost advantage that can be easily copied • Becoming so fixated on cost reduction such that the firm's offerings lack the primary features that attract buyers • Having a rival discover a new lower -cost value chain approach or develop a cost - saving technological breakthrough

Purpose of SWOT

Purpose is to create strategic alternatives: ➢Leverage internal strengths to exploit external opportunities ➢Leverage internal strengths to reduce the likelihood of external threats ➢Mitigate internal weaknesses to take advantage of external opportunities ➢Mitigate internal weaknesses to reduce the likelihood of external threats can be used to examine strengths, weaknesses in relations to customers

cost leadership strategy

Reduces prices below all competitors: - gain market share OR Choose the same price as competitors: - greater profits rather than higher market share -is an integrated set of actions taken to produce products with features that are acceptable to customers at the lowest cost, relative to that of competitors -commonly sell standardized goods or services, but with competitive levels of differentiation, to the industry's most typical customers. -firms using the cost leadership strategy scour the world to find low-cost producers to which they outsource various functions (e.g., manufacturing goods) as a means of keeping their costs low relative to competitors' costs.

economies of scope

The average total cost of production decreases as a result of increasing the number of different goods produced - ex:PVH,honda

sources of product differentiation: better quality/reliability

The product does not necessarily do a better job as far as performance on existing features. It does not do more jobs than other products, and it does not do a unique job. It simply lasts longer. - Toyota - Honda - Energizer

more information on cost leadership

Thus, cost leaders seeking competitively valuable ways to reduce costs may want to concentrate on the primary activities of inbound logistics and outbound logistics. An example of this is the decision by a number of low-cost producers to outsource their manufacturing operations to low-cost firms with low-wage employees -Research suggests that having a competitive advantage in logistics creates more value with a cost leadership strategy than with a differentiation strategy.

how is a business model different from a business-level strategy?

a business model describes what a firm does while a business level strategy describes how it does it

a cost leadership strategy is one in which

a company uses process innovations, such as advanced production or distribution methods, to operate efficiently.

which of the following scenarios represents a company that has selected a differentiation strategy?

a grocery store chain is converting its local neighborhood stores to warehouses. the chain eliminates shopping in the aisles and instead has customers select items online or through an app. the customers can then pick up their items in a drive-through without having to leave their vehicles.

experience curve

a representation of the relationship between cumulative volume and product cost

a business level strategy is

an integrated and coordinated set of commitments and actions the firm uses to gain a competitive advantage by exploiting core competencies in a specific product market

Among firms utilizing a differentiation strategy, which of the following best exemplifies the typical relationship between consumers' brand loyalty and price sensitivity, and the effect it has on a brand's rivalry with competitors?

apples customers tend to be extremely brand loyal are thus more tolerant of price increases . however, as Samsung creates increasingly similar products, Apple will have to respond by improving the perceived value of its products

Michelle opens a residential heating company dedicated to geothermal heating systems. She is pursuing a focused differentiation strategy, serving the needs of customers who are looking for environmentally friendly solutions to heat and cool their homes. Which of the following represents a risk to the company because Michelle is using a focus strategy rather than a broad strategy?

as renewable energy continues to gain popularity, mainstream residential hearing and coding companies that are larger and have more resources decide to offer more geothermal options

A software firm has chosen to implement a differentiation strategy, offering its product in a Software as a Service (SaaS) platform with a monthly subscription. Most of the firm's competitors are selling their products as a one-time purchase. Which of the following represents the greatest risk to the strategy? a. theres a shortage of technical workers to maintain the software platform, causing human resources to increase wages to attract quality employees b. an established competitor has announced it will begin offering its program in a SaaS model next quarter c. as the number of users increase, company will need to invest resources to scale the SaaS platform d. biggest competitor in this software market it slashing its prices to below the company's annual rate

b

Dan Jones, the owner of Harbor Home Remodeling, has been researching demographic information on homeowners in his area. He has learned that younger people are moving out of the region—a trend that's expected to continue—while middle-aged and older people are remaining in their homes. In order to differentiate his firm and better compete against rival, general remodeling firms in this environment, which strategy would best enable Dan to fulfill his purpose? a. dan should "perform activities differently" and pursue cost leadership strategy. by using less expensive materials and cheaper labor, he could reduce the cost of his remodeling services b. dan should "perform activities differently" and pursue a focused differentiation strategy. he could specialize in remodeling homes to meet the unique needs of aging people, such as installing wheelchair ramps and low-threshold showers c. dan should perform different activities and transition into building new custom homes for the segment of the market that interests him. retirees and the elderly d.dan should "perform activities differently" and pursue a differentiation strategy. in addition to his remodeling services, he could offer other home repair services, such as plumbing and electrical repair.

b

Two types of target markets

broad market and narrow market segment

what is a business model?

business model describes what a firm does to create, deliver, and capture value for its stakeholders. -business model is a framework for how the firm will create, deliver, and capture value while a business-level strategy is the set of commitments and actions that yields the path a firm intends to follow to gain a competitive advantage by exploiting its core competencies in a specific product market. -Understanding customers in terms of who, what, and how is foundational to developing and using successfully both a business model and a business-level strategy.

which of the following statements regarding firms following a differentiation strategy is NOT true? a. although a firm that has successfully differentiated its products typically develops a loyal following that is less price sensitive it must always be aware of rival products and reported by continuing to improve the value of its own products b. a firm that has successfully differentiated its products may have to pay higher costs for high-quality components, but these costs are offset by the firms higher margins c. when a firm succeeds at differentiating its products, it acts as a magnet attracting potential new entrants to the market d. when a firm has successfully differentiated its products from other competing products, it decreases the likelihood that consumers will opt for product substitutes.

c

strategic trade-offs

choices between a cost or value position

companies must effectively manage their relationships with customers because

companies must satisfy customers needs to achieve a competitive advantage

a construction company is pursuing a focused differentiation strategy, and after receiving its core competencies, the leaders have decided to specialize in hospital construction, which of the following is an example of how the strategy is addressing the bargaining power of buyers? (customers)

company participates in competitive bidding processes, despite often submitting a higher bid than competitor's, it is awarded the job based on its expertise

which of the following represents a risk for companies pursuing a differentiation strategy?

competitors imitation of a product at a lower price causing customers to purchase their product

An oil company develops an innovative refining process that reduces the time required to produce gasoline by 25 percent. The company has identified its unique process as a core competency. Which of the following strategies would be most beneficial for the company to pursue?

cost leadership

a differentiation strategy is one in which a firm

creates products that have features that customers value and are willing to pay a higher price for.

How to Find Sources of Product Differentiation

customer segmentation and consumption chain analysis (mapping the consumption chain)

southwest airlines decision to "perform activities differently" has allowed the organization to differentiate itself from competitors and made is a low-cost leader. which of the following activities is NOT contributing to the firms ability to fulfill the purpose of the business strategy? a. having short-haul, point to point routes between mid sized cities and secondary airports b. maintaining low ticket prices c. training lean and productive ground and gate crews d. offering free in flight meals

d

which of the following represents a risk for companies pursuing a cost leadership strategy? a. failure to provide crisp and identifiable differentiation to customers in the form of a firms product b. counterfeit versions of a company's products c. pricing that is higher than customers perceived value of a quality product d. competitors innovations resulting in their ability to drive lower costs

d

which of the following strategies could be implemented to improve a company's richness it its customers relationships? a. radio and billboard advertising campaign featuring a celebrity endorsing the company's product b. customer loyalty program with multiple fine-print requirements c. baby products sale announced through mailed postcard to the company's entire database of customers d. satisfaction surveys following the arrival of a product

d

franchise business model,

finds a firm licensing its trademark and the processes it follows to create and deliver a product to franchisees. -In this instance, the firm franchising its trademark and processes captures value by receiving fees and royalty payments from its franchisees. -McDonald's and Panera Bread both use the franchise business model. McDonald's uses the model as part of its cost leadership strategy while Panera Bread uses it to implement a differentiation strategy

a freemium model

firm provides a basic product to customers for free and earns revenues and profits by selling a premium version of the service—examples include Dropbox and MailChimp

as part of its selection of a business-level strategy, a firm will decide which customers it will serve, what needs those customers have that it will satisfy and:

how it will satisfy those customers needs using its core competencies to implements value-creating strategies

to be successful, a firm utilizing an integrated cost leadership/ differentiation strategy must

increase the number of primary value chain activities and support functions in which it becomes competent

many companies pursue an integrated cost leadership/differentiation strategy, working to lower costs structures while also enhancing their products and services. to successfully pursue this strategy, companies could

invest in developing total quality management (TQM) systems and improving marketing effectiveness

learning curve

labor costs per unit decrease with increases in volume due to learning

traditional answer to creating unique value

low cost or differentiation

When selecting a business-level strategy, firms evaluate two types of potential competitive advantages:

lower cost than rivals or the ability to differentiate and command a premium price that exceeds the extra cost of doing so

what two things answer the questions to who, what, and how?

managing customer relationships effectively and the dimensions of reach, richness, and affiliation.

narrow market segment

means that the firm intends to serve the needs of a narrow customer group.

What: Determining Which Customer Needs to Satisfy

needs (what) are related to a product's benefits and features.

The reach dimension of relationships with customers

revolves around the firm's access and connection to customers. In general, firms seek to extend their reach, adding customers in the process of doing so. -social networking sites such as facebook (value these firms create to connect with others) -netflix

An industry-leading technology firm utilizing a differentiation strategy has decided to increase prices on its patented product to bolster profit margins and deliver a higher return to investors. Consider the impact of this decision in light of the forces of competition. Which of the following situations should the firm prioritize?

rivalry with existing competitors

cost leadership strategies can be attractive to companies looking to address the competitive force of rivalry with existing competitors because

rivals are hesitant to slash their own prices to compete with low-cost leader

broad market

seek to use their capabilities to create value for customers on an industry-wide basis

With a focus strategy, a company:

selects a more narrow group, or niche, of customers on which to concentrate its efforts.

principal sources

spread fixed costs of production - spread nonproduction costs - specialization of equipment - specialization of people

research indicates that a competitive advantage in logistics is a primary strategy that creates the most value for a cost leadership strategy. which of the following value-creating activities should be a focus for a company pursuing a cost leadership strategy?

supply chain management

the subscription model.

the business model finds a firm offering a product to customers on a regular basis such as once-per-month, once-per-year, or upon demand. Netflix uses a subscription business model

differentiation strategies are successful in addressing the competitive force of the bargaining power of suppliers because

the higher margins of the firm can reduce the influence of increase in supplier costs

the effectiveness of a business-level strategy is contingent on:

the opportunities and threats in a firms external environment and the strengths and weaknesses of a firms resources

which of the following is an example of a subscription model?

we craft box, which delivers monthly craft supplies and instructions for children for about $25 per month

what is strategic competitiveness?

when the firm satisfies a group of customers by using its competitive advantages as the basis for competing in individual product markets.

a peer-to-peer model

where a business matches those wanting a particular service with those providing that service—two examples are Task Rabbit and Airbnb

Often a company's business-level strategy can be easily identified by reviewing its marketing materials. Consider the marketing slogans of the following companies and identify which one is pursuing a business-level strategy of differentiation.

whole foods-americas healthiest grocery store

Dangers of SWOT analysis

▪ Long lists with no attempt at prioritization. ▪ Over generalization - sweeping statements often based on biased and unsupported opinions. ▪ SWOT is used as a substitute for analysis it should result from detailed analysis using the frameworks in Chapters 2 and 3. ▪ SWOT is not used to guide strategy it is seen as an end in itself.