Chapter 4 Strategic Management

cost leadership strategy

produce goods or services with features that are acceptable to customers at the lowest relative cost

Firms that seek competitive advantage through Cost Leadership Strat...

produce standardized products for an industry's typical consumer at low cost. --must be offered with a competitive level of differentiation

differentiation strategy

to produce goods or services (at an acceptable cost) that customers view as being different and important.

When trying to find out the business level strategy, companies analyze what 2 types of potential competitive advantages?

1. Lower cost than rivals 2. or the ability to differentiate and command a premium price that exceeds the extra cost of doing so.

Reach Dimension

The firms access & connection to customers Importance: adding customers...

What is the purpose of a business level strategy?

-to create differences between a firms position and its competitors. -a firm has to decide on whether it is going to "choose to perform activities differently" or whether they are going to "perform different activities"

2 types of target markets

1) Broad Market: Use capabilities to create value to customers on an industry-wide basis 2) Narrow Market: Serve the needs of a narrow group of customers

3 Competitive Risks with Focus Strategies

1) Comp's ability to use core competencies to "out-focus" the focuser by serving a more narrowly defined market segment 2) Industry-wide comp's focusing on customer group's specialized needs 3) Reduced needs between the customers from a narrow and industry-wide markets segments.

5 business-level strategies

1) Cost Leadership 2) differentiation 3) Focus cost leadership 4) Focused differentiation 5) Integrated cost leadership/differentiation

4 Risks with Differentiation Strategy

1) Customers decide the differentiation is no longer unique compared to the comp. thus not worth the premium price. 2) The differentiation does not create enough value for customers to pay the premium price 3) ability of comp's to make products that have similar features at lower cost. 4) counterfeiting- firms produce a cheap imitation of a differentiated good or service.

Firms develop and use TQM systems to: (3) (RIC)

1) Increase customer satisfaction 2) Cut costs 3) Reduce time to introduce innovative products to the marketplace

3 Competitive risks with Cost Leadership strategy

1) Loss of competitive advantage by new tech. 2) Failure to detect a change in customer needs 3) Competitors imitating strategy

3 examples of specific markets that Focus Strategy targets

1) Particular buyer group (i.e. youth vs seniors) 2) Different segment of product line 3) Different geographic market (norther or southern italy using a foreign subsidiary)

3 Dimensions of customer relations (RRA)

1) Reach 2) Richness 3) Affiliation

In terms of customers, when selecting a business level strategy the firm determines...(3)

1) WHO will be served 2) WHAT needs the target customers have that need to satisfy 3) HOW to satisfy those needs

Affiliation Dimension

Concerned with facilitating useful interactions with customers Importance: produces fewer complaints, enhancing satisfaction

Example of an information network

Customer Relationship Management (CRM)

earn above avg. returns in spite of strong competitive forces

Effective use of the cost leadership strategy allows a firm to...

Goal of FMS

Eliminate the low cost vs. product variety tradeoff

Flexible Manufacturing Systems (FMS) Def.

Integrates human, physical, and information resources to create (relatively) differentiated products at (relatively) low costs.

Richness dimension

The depth/detail of the 2-way flow of information between firm and customers Importance: to establish a competitive adv.

Purpose of Integrated cost leadership/differentiation Strategy

To provide customers with relatively low-cost products that also have valued differentiated features

focus strategy

actions taken to produce goods or services that serve the needs of a particular competitive segment

business-level strategy

an integrated set of actions to gain a competitive advantage by exploiting core competencies (in specific product markets.)

total quality management (TQM)

an organizations total commitment to the customer and to continuous improvement of every process -through the use of data-driven, problem-solving approaches based on empowerment of employee groups and teams.

market segmentation

dividing a market into meaningful, relatively similar, and identifiable segments or groups

integrated cost leadership/ differentiation strategy

engaging in primary & support activities that allow a firm to pursue both low cost & differentiation

Primary risk of the Integrated strategy ("stuck in the middle")

firm might not produce products that offer sufficient value in terms of either low cost or differentiation.

Competitive Adv. through Differentiation Strat.

firms provide products with different (and valued) features --sold at a premium --the less similar=the more buffered from comp.