Exam 2
business strategies jet blue used to gain a competitive advantage
differentiation cost leadership
when a company introduces a new product or process or business model with the intent of gaining a competitive advantage, the company is engaging in _____
innovation
most firms consider laggards to be ___________
not worth the effort of pursuing
what is a benefit of pursuing a differentiation strategy when it comes to the power of suppliers
provides protection against an increase in input prices
strategic entrepreneurship
pursuit of social goals while creating profitable business
a firm that successfully leverages network effects can
push its industry into the growth stage
economy of scope
reducing overall production costs by finding multiple uses for its components and facilities
crossing the chasm
successfully transitioning from one stage of the industry life cycle to the next
the customer segment known as ________________________ enjoy testing product prototypes and providing voluntary feedback that companies use to perfect their products
technology enthusiasts
when might a differentiation strategy fail
when the focus on the competition shifts to price rather than unique product features
formula that describes the relationship between value and cost that would suggest that firm A has competitive advantage over from B
(V-C) A>(V-C) B
2 ways standards emerge
- being imposed by government or other agencies - through market competition
name 4 strategic options for a firm in the decline stage of the industry life cycle
- consolidate - maintain - exit - harvest
3 advantages of platform businesses over pipeline businesses
-unlock new sources of value creation and supply - scale more efficiently by eliminating gatekeepers - benefit from community feedback
IKEA uses what framework to implement a blue ocean strategy
eliminate-reduce--raise-create
what variables can managers primarily manipulate in order to answer the question "How should we compete?"
cost & value
at what stage of the industry life cycle does a standard develop
growth
3 who-what-why-how questions of competition managers should answer when formulating a business-level strategy
how will we satisfy our customers needs what customer needs will we satisfy who are the customer segments we will serve
industry life cycle
identifies how industries grow and change over time
diseconomies of scale
increase in output results in an increase in costs
cube square rule
increasing the surface area (size) results in a disproportionate volume (space)
strategic trade off
making a choice between a cost position and a value position
what 2 things can the scope of competition be considered
narrow or broad
the most significant challenge jet blue faced while implementing its new business strategy was
reconciling the trade offs between cutting costs and providing superior service
what is value innovation
simultaneous pursuit of differentiation and low cost, creating a leap in value for both buyers and the company.
what has to happen to a companies value creation and costs in order for a differentiation strategy to strengthen a companies strategic position and boost its competitive advantage
the increase in value creation but exceed the increase in costs
what 2 variables determine a firms strategic position
value creation cost
implementing a blue ocean strategy requires making competition irrelevant and creating a new market space otherwise known as
value innovation
how can cost control help a firm that is pursuing a differentiation strategy
without cost control, an added expense of a new product can offset the increase in perceived value and erode the profit margin
what is the scope of competition
breadth or narrowness of an organizations focus as measured horizontally by the range of industries, market segments, or geographical regions it targets, or vertically by the degree to which it is integrated.
what type of strategies are differentiation and cost leadership
business level strategies
name 4 input factors
capital labor raw materials information technology services
what type of pricing is differentiation strategy associated with
premium
what type of innovation uses new technologies to invade an existing market from the bottom up?
disruptive
managers can increase the perceived value of the firms product or service by focusing on what
customer service
red ocean
defined market, defined competitors and a typical way to run a business in any specific industry. also like a shark infested ocean where the sharks are fighting each other for the same prey.
customers who desire a product because it stokes their imagination and creativity are known as ____________________
early adopters
according to the crossing the chasm framework, the largest difference in consumer expectation is between
early adopters and the early majority
the shakeout stage of the industry life cycle is dominated by what customers
early majority
which 2 customer segments make up the largest percentage of the market potential
early majority and late majority
4 most important cost drivers that managers can manipulate
economies of scale experience curve effects cost of input factors learning curve effects
primary goal for firms in the growth phase of the industry life cycle
establish a strong strategic position so that rivals cannot imitate it easily
primary goal of firms during introduction phase of in industry life cycle
establish themselves as a market participant and position themselves for future growth
in order for a firm to implement a business level strategy, it must limit what 2 things
external threats its own internal weaknesses
value innovation
firm that manages to avoid competition entirely by offering a product or service that creates an uncontested market spaec
in the maturity stage of the industry life cycle, industry growth ______________
flattens or even declines
value curve
graphic depiction of a firms relative performance across its industry factors of competition
after a firm has gained market acceptance with a radical innovation, it will typically follow up with ______
incremental innovations
minimum efficient scale
indicates the level of output needed to bring down the cost per unit as much as possible
customer segment known as early majority enters the market in ____________
large numbers
a firm provides what in a focused cost leadership strategy
low cost products to a niche market
what 2 topics should managers answer questions about when pursuing value innovation
lowering costs increasing perceived customer benefits
blue ocean
market for a product where there is no competition or very less competition
what is the most important competency in the introduction stage of the industry life cycle
marketing
in what stage of the industry life cycle do a few number or large firms compete for a share of the market that has reached its max size
maturity
increases in the value of a product or service that result from an increase in the number of users is known as _______
network effects
a large incumbent firm that has established a number of formalized practices and procedures may have a difficult time producing radical innovations due to its _____________
organizational inertia
which 3 competitive forces can result in erosion of margins for both differentiation and cost leadership business strategies
power of suppliers power of buyers threat of entry
after a standard is established in an industry, firms focus more on ______ innovations
process
3 metrics used by social entrepreneurs to evaluate performance
profit planet people
a firm that successfully leverages network effects can ___________
push its industry into the growth stage
what are 3 threats to a firm pursuing a cost leadership strategy
replacement by innovative substitutes value falling below acceptable threshold competitors adopting similar business strategies
relationship between fixed costs and economies of scale
the amount of fixed costs allocated to each unit of output decreases as output increases
a company with a cost leadership strategy faces significant difficulties when
the focus on competition shifts from price to non price attributes
during growth stage of industry life cycle, firms focus on process innovation in order to ____________ (2 things)
- increase production volume - reduce per-unit production costs
in order for a product or service to be patentable, it must be what 3 things
- non obvious - useful - novel
3 things incumbent firms do to counter disruptive innovations
- protect the low end of the market - continue to innovate - disrupt themselves
2 things innovation can do
- provide firms with a competitive advantage - make existing products or businesses obsolete
name the 5 steps of the s curve development of most industries in order
1 demand for a new product is slow to take off 2 demand accelerates 3 demand decelerates 4 demand turns to 0 5 demand becomes negative as the market contracts
4 steps of innovation process
1 idea 2 invention 3 innovation 4 imitation
5 stages of industry life cycle in order
1 introduction 2 growth 3 shakeout 4 maturity 5 decline
2 factors that determine a firms competitive advantage
cost position relative to competitors value position relative to competitors
innovation ecosystem
a firms embeddedness in a complex network of suppliers, buyers and complementors which require interdependent strategic decision making
what are 2 components of a cost leadership strategy
acceptable value lowest costs in the industry
by using a differentiation strategy, a firm aims to
add unique features that will increase the perceived value of a product
standard
agreed upon solution about a common set of engineering features and design choices
differentiation strategy
aims to create higher value to customers by offering products with unique features but a similar level of costs to those of competing products
during the shakeout stage of the industry life cycle, profits degrade for ____________
all but the most efficient firms
why do many firms fail to 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
during the shakeout stage of industry life cycle, process innovation ______________
becomes more important
diseconomies of scale occur when a firm ____
becomes too large and complex to manage efficiently
what strategy outlines the steps a manager will take to achieve competitive advantage in a single product market
business level strategy
introductory stage of the industry life cycle is a ___________ intensive process
capital (innovator is investing in designing a unique product)
a disruptive innovation is most likely to be successful if it _______________
captures the low end of the market first
list 2 ways a firm pursuing a blue ocean strategy increase its profit margins
charge a higher price than the cost leader charge a lower price than the differentiator
experience curve
combine both learning effects and product improvements
what occurred to jet blue after 2007
competitive disadvantage
winners in the shakeout are generally ______________
cost leaders
