Chapter 6 405

What are focus strategies?

focused cost leadership focused differentiation

What are the cost advantages (drivers) upon which a firm can build its cost leadership strategy?

Cost of input factors, economies of scale, learning curve effects, experience curve effects

How can valuable cost advantages help firms neutralize threats identified in the five forces model?

Cost-Leadership Benefit: protected from competitors if price war Risk: new entrant arrives and new capabilities needed

How can valuable bases of differentiation help firms neutralize threats identified in the five forces model?

Differentiation Benefit: reduced rivalry & high cost of imitation Risk: might overshoot features needed & vulnerable to price-sensitive customers

Why is it difficult to succeed at an integration strategy?

Difficult because the firm manages internal value chain activities that are fundamentally different from one another. The bad news is that an integration strategy is difficult to attain due to required trade-off decisions. But because of this, those firms that do attain it will tend to hold a competitive advantage for a longer period of time.

What is an integration strategy?

Firms skilled in both lowering costs and uniqueness Integration can work if investments are not substitutes but rather complements.Providing important spill-over effects The goal of an integration strategy is a larger economic value (V − C) than that of rivals.

What are the bases of differentiation (value drivers) upon which a firm can build its differentiation strategy?

Some of the unique value drivers managers can manipulate are product features, customer service, customization, and complements. Value drivers contribute to competitive advantage only if their increase in value creation (ΔV) exceeds the increase in costs (ΔC).

What is the goal of a cost leadership strategy?

The goal of a cost-leadership strategy is to reduce the firm's cost below that of its competitors.

What is the goal of a differentiation strategy?

The goal of a differentiation strategy is to increase the perceived value of goods and services so that customers will pay a higher price for additional features.

What are business (level) strategies?

The goal-directed actions managers take in their quest for competitive advantage when competing in a single product market

Why is it difficult to succeed at an integration strategy? Continued.

When firms fail to resolve strategic trade-offs between differentiation and cost, they end up being "stuck in the middle." They then succeed at neither strategy, leading to a competitive disadvantage.

When are focus strategies appropriate?

When the firm can serve a narrow segment more effectively than competitors who choose to compete industry wide, the narrow segment's needs are so special that industry wide competitors choose not to meet them, certain narrow segments are being poorly served by industry wide competitors.

What key questions must we answer in the process of formulating business strategies?

Who - which customer segments - will we serve? What customer needs, wishes, and desires will we satisfy? Why do we want to satisfy them? How will we satisfy our customers' needs?