CH 6 - Business Strategy: Differentiation, Cost Leadership, and Blue Oceans
The goal of a _____________________ strategy is to achieve costs below those of competitors while maintaining similar value. A firm with this strategy could or could not achieve differentiation parity.
Cost-leadership
Which type of strategy is being used if a company offers a product at a lower cost than its competitors?
Cost-leadership strategy
A differentiation strategy can be threatened when __________________.
A product becomes commoditized, and the focus of the competition shifts to price.
Raoul is starting a new cosmetics company. His focus is on what he believes is a game-changing lipstick. He wants the lipstick to be accessible to everyone, but the manufacturing costs are higher than he had anticipated. If Raoul wants to achieve his desired strategic position, he will need to ___________.
Make strategic trade-offs
In a focused differentiation strategy, the competitive scope is ____________ than in a traditional differentiation strategy.
Narrower
Value drivers known as _____________ add value to a product or service when they are consumed in tandem with the focal product.
Complements
A firm's strategic position is determined by the relationship of which two variables?
Value creation and cost
Implementing a blue ocean strategy requires making competition irrelevant and creating a new market space, otherwise known as ____________.
Value innovation
Which of the following variables can managers primarily manipulate in order to answer the question, "How should we compete?"
Value; Cost
Why do many firms fail to successfully implement a blue ocean strategy?
Because they end up being "stuck in the middle," unable to increase value and lower costs at the same time
Diseconomies of scale often appear when a firm ______________.
Becomes too large and complex to manager efficiently
How to compete on a business level is defined by the variable value and cost. Together they define the ____________.
Economic value created
Business-level strategy addresses which overarching question?
How should we compete?
Positive adjustments in product features, customer service, and complements may enable managers to _____________.
Improve the firm's strategic position
A firm's competitive advantage is determined jointly by _________________ effects and firm effects.
Industry
A manufacturer of electric components can use its manufacturing machines to product many different components such as semiconductors, sensors and capacitors. In this case, the firm benefits from an economy of ____________, reducing overall production costs by finding multiple uses for its components and facilities.
Scope
Economies of scope
They are the savings that come from producing two or more outputs at less cost than producing each output individually.
The perceived value that a company creates for consumers less the company's costs to create the value equals ________________.
The economic value created
A firm that hopes to achieve a competitive advantage by maintaining an efficient supply chain and taking advantage of economies of scale and a well-trained staff is focusing on _________________.
Cost drivers
High-end pen manufacturer Mont Blanc pursues a differentiation strategy with a(n) _____________ scope of competition, pursuing only those who need or want an expensive writing instrument.
Narrow
In terms of competitive positioning, erosion of margins is a risk for which of the following competitive forces?
- Threat of entry - Power of buyers - Power of suppliers
Economies of ___________ are the savings that come from producing two or more different outputs at a lower cost than producing each output individually.
Scope
A firm's strategic profile based on value creation and cost is called its _____________.
Strategic position
Blue ocean strategy
- Business-level strategy that successfully combines differentiation and cost-leadership activities using value innovation to reconcile the inherent trade-offs in those two distinct strategic positions - Ocean is a metaphor to denote market spaces - Represent untapped market space - Creation of additional demand - Resulting opportunities for highly profitable growth
Blue ocean strategy implementation
- Charge higher price than the cost leader, reflecting its higher value creation and generating greater profit margins - Firm can lower its price below that of the differentiator because of its lower-cost structure, and make up margin lost by increased sales
In order for a firm to successfully implement a business-level strategy, it must limit the impact of ________________.
- Its own internal weaknesses - External threats
A producer of consumer headphones that successfully differentiates its products with a patented noise-canceling technology and celebrity endorsements will enjoy which of the following benefits?
- Less intense competition from imitators - The ability to charge a premium price
When pursuing value innovation, managers must answer questions focused on which of the following?
- Lowering costs - Increasing perceived consumer benefits
Which of the following are components of a cost-leadership strategy?
- Lowest costs in the industry - Acceptable value
Which of the following are examples of ways that a large retailing firm can increase the perceived value of its offerings by focusing on customer service?
- Maintaining a domestic call center that is open 24 hours per day - Offering a "no questions asked" return policy
Which of the following scenarios would result in strengthening a firm's strategic position?
A firm adds a new product feature that greatly increases the perceived value of the product at a minimal cost to the firm.
A firm that pursues a differentiation strategy will often find that the added expense of offering new or unique product features offsets the increase in perceived value, and profit margins begin to erode. This underscores the importance of _______ control for firms pursuing a differentiation strategy.
Cost
A company with a cost-leadership strategy faces significant difficulties when _________________.
The focus of competition shifts from price to non-price attributes
