chapter 5, 6 strategic management
disadvantages of cost leader
-may suffer from perceptions of low quality -difficult to attract customers that are brand loyal; struggle in fragmented markets (Coke vs. Pepsi) -generally smaller profit margins- must sell a lot to make $$$ -a focus on costs may lead firms to be late- movers on key trends -similarly, a focus on efficiency may make it difficult to change
the most salient value drivers that managers have to improve their firm's strategic position are:
-product features -customer service -complements
characteristics of competitive advantage
cost- based, uniqueness- based
what defines a "narrow target market" varies across firms, including:
customer segment, sales channel
additional value is created by focusing on superior customer service and responsiveness
customer service
in addition to product quality, Chick- fil- A's focus on customer service adds value to their products
customer service
moves beyond differentiation by allowing customers to purchase customized products/ services
customization
describes improved efficiencies based on accumulated knowledge from experience
economies of learning
Savings that come from producing two (or more) outputs at less cost than producing each output individually
economies of scale
costs per unit of producing a product decreases a firms gain grater market share
economies of scale
rising costs does what?
erode profitability and reduce economic value created
McDonalds scrutinizes every element of their operation to reduce costs
cost- based
advantages of differentiation
-Ability to charge higher prices -Strong profit margins -Increased customer loyalty -Lower customer price sensitivities -Decreases competitiveness of new industry entrants
business level strategy broadly concerns the question "how should a firm compete?"
-WHO will we serve (customer segments) - WHAT customer needs/ desires will we satisfy? - WHY do we want to satisfy them? -HOW will we satisfy our own customers' needs?
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 perceptions of value -customers may switch to low-cost alternative if economic conditions change
advantages of cost leader
-firms with higher market shares enjoy higher profits -can more easily endure pressure on prices such as during a price war
managers can adjust a number of different levers to improve a firm's strategic position by either:
-increasing perceived value (improve value position- mainly for differentiation strategy) -decreasing costs (improve cost position- mainly for low- cost strategy)
the focus of competition in differentiation strategy tends to be on:
-unique product features, service, and new product launches -market and promotion -NOT price
value drivers add value to a firm's offering ONLY IF the value creation...
EXCEEDS the increased costs
The goal of a differentiation strategy
add unique features to products in an effort to increase their perceived value
can effectively focus on exploration and exploitation
ambidextrous organizations
Toyota targets a wide range of customers with a variety of different products
broad target
characteristics of scope of operation
broad target or narrow target customer segment
Walmart's cost leadership strategy depends on attracting a large customer base and keeping prices low by buying massive quantities of goods from suppliers
broad target, cost
a goal- directed actions managers take in their quest for competitive advantage in a single product market -may involve (1) a single product (2) a group or similar products
business level strategy
AT&T U-Verse allows users to bundle services; Samsung products integrate easily
complements
add value to a product or service when consumed in tandem
complements
in value is increased,
consumers will pay a higher price
best cost: managers may find themselves in the position where they can attempt to integrate both ______ and _______ value positions
cost and value
access to lower- cost input factors such as raw materials, capital, labor, and IT services
cost of input factors
cost drivers inclue:
cost of input factors economies of scale learning- curve effects experience curve
captures both learning effects and process improvements that allow a firm to move to a new learning curve
experience curve
firms following a __________ strategy compete on price in a narrow target market
focused cost leadership
a ___________ strategy depends on offering unique features that fulfill needs of a narrow market
focused differentiation
are business- level strategies that can be deployed in any organization
generic strategies
describes any new product, process, or any modification of an existing product or process
innovation
as firms produce more units, they learn how to be more efficient
learning curve effects
firms learn how to do things better by doing them repeatedly over time
learning curve effects
_________ requires a structure that emphasizes cost control while ________ requires a structure that allows for creativity and customer responsiveness
low- cost position, differentiation
Ferrari offers only a few, high- priced options that target a much smaller segment of auto customers
narrow target
In using a focused cost leadership, Dollar General does not offer a full array of consumer goods, but those that it does offer are priced to move
narrow target, cost
Anthropologie follows a focused differentiation strategy by selling unique (and pricey) women's apparel, accessories, and home furnishings
narrow target, uniqueness
are a function of process innovations- which describe a new production method or technology that improves efficiency
process improvements
additional value is created by adding unique product features
product features
turns commodity products into differentiated products that command a premium price
product features
value drivers:
product features customer service complements
goal of cost leadership strategy
reduce the firm's cost below competitors costs while offering similar value
two competitive dimensions are key to business- level strategy
source of competitive advantage scope of operation
appropriate factors that support internal value chain activities that help firms integrate cost and value posisitons
structure, culture, and routines
Nordstrom builds its differentiation strategy around offering designer merchandise and providing exceptional service
uniqueness
Burgerfi incurs higher costs to offer customers a higher- quality product and unique dining experience
uniqueness- based