strategic management exam 3
rate of new product adaption is
increasing
best-cost strategy
integrating both cost and value positions -more complex but very effective -difficult because each position requires distinct value chain activities ex: Ikea or Chipotle (good quality at an efficient cost)
co-location
involves goods and services offered by different companies in the same physical space -attract a bigger set of customers than individual locations -ex: many fast food restaurants tend to locate next to each other
strategic alliance
involves two or more firms cooperating but NO NEW ENTITY IS FORMED -typically used to share expenses or knowledge
awareness (AMC framework)
knowing what competitors are doing
business-level strategies
most industries have firms that follow each of the generic strategies -success depends on your strategy matching your resources and environmental circumstances
customization
moves beyond differentiation by allowing customers to purchase customized products/ services ex: Nike.com allows customers to build their own shoes
mutual forbearance
occurs when rivals do not act aggressively because each firm recognizes the other can retaliate in multiple markets ex: you rarely see Under Armor aggressively target Nike in fear of reprisal
economies of scope
savings that come from producing two or more outputs at less cost than producing each output individually ex: Taco Bell already has all the fixed capital to produce breakfast items, so they added them to their menu to increase economies of scope
quality (value and cost driver)
signals its durability and reliability -can increase value, but also can decrease costs
early adopters
small group of people that are price/ quality insensitive
diseconomies of scale
spend more to make more
relational view
suggests firms only attain competitive advantage if they develop important inter-organizational relationships (relationships between firms)
product features (value driver)
turns commodity products into differentiated products that command a premium price ex: fruit vs. organic fruit
bricolage
using available materials and resources to create something new ex: Jacob Davis used canvas/ duck cloth from tents to make durable pants that could withstand 19th century labor ex: using paper towel rolls as a speaker
questions under "how should a firm compete"
-WHO will we serve? -WHAT customer needs/ desires will we satisfy? -WHY do we want to satisfy them? -HOW will we satisfy our customer needs?
advantages of differentiation
-ability to charge higher prices -strong profit margins -increased customer loyalty -lower customer price sensitivities -decreases competitiveness of new industry entrants
scope of operation
-broad target customer segment -narrow target customer segment
disadvantages of differentiation
-can be risky if customers are not willing to pay premium prices -imitators may steal customers with look-alike products -depends on perception of value -customers may switch to low-cost alternatives if economic conditions change (customers don't feel as wealthy)
source of competitive advantage
-cost based -unique based
cost drivers
-cost of input factors -economies of scale -learning-curve effect -experience curve
what defines a "narrow market" varies across firms including
-customer segment -sales channel
advantages of cost leadership strategy
-firms with higher market shares enjoy higher profits -can more easily endure pressure on prices such as during a price war
first mover disadvantages
-free-rider effects (imitation) -resolution of market/ technological uncertainty -changes in customer tastes and preferences -incumbent inertia (get stuck in the same processes, can't change with the market)
levers that improve a firm's strategic position
-increasing perceived value -decreasing costs
disadvantages of cooperation
-loss of control over operations -transfer of valuable secrets -opportunism by partner firms -stigma spillover (when something bad happens to partner firm, it can damage your reputation too)
disadvantages of cost leadership strategy
-may suffer from perceptions of low quality -difficult to attract customers that are brand loyal; struggle in fragmented markets (ex: Coke vs. Pepsi) -generally smaller profit margins (must sell a lot to make a lot) -a focus on costs may lead firms to be late-movers on key trends -a focus on efficiency may make it difficult to change
first mover advantages
-preemption of resources -economies of scale -experience and learning effects -customer loyalty and branding effects -can establish the dominant design/ institutional standards
value drivers that improve a firm's strategic position
-product features -customer service -complements
value and cost drivers of best-cost strategy
-quality -economies of scope -customization -innovation -structure, culture, and routines
the focus of competition in differentiation tends to be on
-unique product features, service, and new product launches -market and promotion -NOT PRICES
industry/ product lifecycle
1. introduction or embryonic phase (dominant design emerges) 2. growth phase 3. shake-up phase 4. mature phase 5. decline phase
joint venture
a cooperative arrangement that involves two or more firms each contributing to the creation of a new entity -ownership, operations, decision-making, and profits is shared by contributing firms -can be used to take advantage of a shared opportunity OR in response to a shared threat
motivation (AMC framework)
a desire to respond
fighting brands
a lower-end brand that is used to regain market share without damaging existing higher-quality brands ex: GM introduced the Geo brand in the late 1980's in response to increasing competition from small, inexpensive Japanese cars
blue ocean strategy
a new, untapped market rather than competition with rivals in an existing market place ex: Nintendo Wii transformed video game systems into more interactive multiplayer experiences
foothold
a small position from which to grow -minimize costs and showcase a firm's products and services -how firms try to break into new markets ex: Ikea traditionally enters a new country with a single store (wait to see how people respond and then expand)
cost of input factors (cost driver)
access to lower-cost input factors such as raw materials, capital, labor, and IT services
complements (value driver)
add value to a product or service when used in tandem ex: AT&T U-Verse allows users to bundle services
customer service (value driver)
additional value is created by focusing on superior customer service and responsiveness ex: in addition to product quality, Chick Fil A's focus on customer service adds value to their products
capability (AMC framework)
an ability to respond
disruptive innovation
an innovation that conflicts and threatens to replace traditional approaches in an industry ex: Smartphones have almost completely replaced video cameras
structure, culture, and routines
appropriate factors that support internal value chain activities that help firms integrate cost and value positions -low-cost position requires a structure that emphasizes cost control -differentiation requires a structure that allows for creativity and customer responsiveness
attack (A.I.M)
attacking along another dimension ex: Apple responded to lower-priced Dell computers by boosting performance and versatility
generic business strategies
business-level strategies that can be deployed in ANY ORGANIZATION -two competitive dimensions are key to business-level strategy: 1. source of competitive advantage 2. scope of operation
experience curve (cost driver)
captures both learning effects and PROCESS IMPROVEMENTS that allow a firm to move to a new learning curve -economies of learning -process improvements
focused cost leadership
compete on price in a narrow market -not always the lowest prices in the industry, but low prices relative to other firms in the target market ex: Papa Murphys' targets value-conscious take-and-bake customers
economies of scale (cost driver)
costs per unit of producing a product decreases as firms gain greater market share -costs more in the beginning
focused differentiation
depends on offering unique features that fulfill needs of a narrow target market ex: Whole Foods sells only organic and natural food items to a discerning set of customers willing to pay high prices
process improvements (experience curve)
describe a new production method or technology that improves efficiency -function of process innovations
innovation
describes any new product, process, or any modifications of existing products or processes ex: Apple innovated iTunes
rising costs _____ profitability and _____ economic value created
erode (destroy); reduce -spend money to make money
value drivers add to a firm's offering ONLY IF the added value creation ______ the increased costs
exceeds
red market
existing market place
ambidextrous organizations can effectively focus on
exploration and exploitation
AMC framework
factors that determine the likelihood of a firm responding to competitive rivals Awareness Motivation Capability
stuck in the middle (best cost strategy)
features are not unique enough to differentiate but not necessarily low prices OR if outmaneuvered by competitors
second pricing option
firms able to adequately control costs can price their products similar to competitors to gain additional market share ex: Hyatt is able to leverage their superior brand name in luxury hotel market to gain additional market share for Hyatt Place hotels in low to moderately priced
business-level strategy broadly answers what question?
"how should a firm compete?"
match (A.I.M)
firms follow rivals ex: many universities have followed recent distance education trends by introducing online degree programs
learning-curve effects (cost driver)
firms learn how to do things better by doing them repeatedly over time
multipoint competition
firms that face the same rival in more than one market ex: Coke and Pepsi compete in many markets around the world
differentiation
goal is to add unique features to a product in an effort to increase their perceived value ex: Nordstrom- offers designer merchandise with exceptional service
cost leadership strategy (cost leader)
goal is to reduce the firm's cost below competitors costs while offering similar value ex: Walmart- attracts a large customer base and keeps prices low by buying massive quantities of goods from suppliers
business-level strategy
goal-directed actions managers take inn their quest for competitive advantage in a SINGLE PRODUCT MARKET
"taking A.I.M"
how firms can respond to rivals introducing disruptive innovation -Attack -Ignore -Match
ignore (A.I.M)
if strategic leaders feel the innovation is a fad and/or unlikely to affect their market share, they may just continue as normal
economies of learning (experience curve)
improved efficiencies based on accumulated knowledge from experience