Chapter 5 MGMT

Potential Pitfalls of Focus Strategies

- Cost advantages may erode within the narrow segment - Even product and service offerings that are highly focused are subject to competition from new entrants and from imitation - Focusers can become too focused to satisfy buyer needs

Potential Pitfalls of Overall Cost leadership

- Too much focus on one or a few value-chain activities - Increase in the cost of the inputs on which the advantage is based - A strategy that can be imitated too easily - A lack of parity on differentiation - Reduced flexibility - Obsolescence of the basis of cost advantage

forms of differentiation

Prestige or brand image Quality Technology Innovation Features Customer service Dealer network

mass customization

a firm's ability to manufacture unique products in small quantities at low cost

consolidation strategy

a firm's acquiring or merging with other firms in an industry in order to enhance market power and gain valuable assets

focus strategy

a firm's generic strategy based on appeal to a narrow market segment within an industry

overall cost leadership

a firm's generic strategy based on appeal to the industrywide market using a competitive advantage based on low cost

Generic Strategies

basic types of business level strategies based on breadth of target market (industrywide versus narrow market segment) and type of competitive advantage (low cost versus uniqueness)

combination strategies

firms' integrations of various strategies to provide multiple types of value to customers

Forms overall cost leadership

Agressive construction of efficient facilities Vigorous pursuit of Cost reduction from Experience Tight Cost and Overhead control Cost Minimization

Potential Pitfalls of Differentiation Strategies

Uniqueness that is not valuable Too much differentiation Too high a price premium Differentiation that is easily imitated Dilution of brand identification through product line extensions Perceptions of differentiation may vary between buyers and sellers

reverse positioning

a break in industry tendency to continuously augment products, characteristic of the product life cycle, by offering products with fewer product attributes and lower prices

breakaway positioning

a break in industry tendency to incrementally improve products along specific dimensions, characteristic of the product life cycle, by offering products that are still in the industry but that are perceived by customers as being different

competitive parity

a firm's achievement of similarity, or being "on par," with competitors with respect to low cost, differentiation, or other strategic product characteristic.

differentiation strategy

a firm's generic strategy based on creating differences in the firm's product or service offering by creating something that is perceived industrywide as unique and valued by customers

harvesting strategy

a strategy of wringing as much profit as possible out of a business in the short to medium term by reducing costs

turnaround strategy

a strategy that reverses a firm's decline in performance and returns it to growth and profitability

experience curve

the decline in unit costs of production as cumulative output increases

introduction stage

the first stage of the industry life cycle, characterized by (1) new products that are not known to customers, (2) poorly defined market segments, (3) unspecified product features, (4) low sales growth, (5) rapid technological change, (6) operating losses, and (7) a need for financial support.

Decline Stage

the fourth stage of the product life cycle, characterized by (1) falling sales and profits, (2) increasing price competition, and (3) industry consolidation.

growth stage

the second stage of the product life cycle, characterized by (1) strong increases in sales; (2) growing competition; (3) developing brand recognition; and (4) a need for financing complementary value-chain activities such as marketing, sales, customer service, and research and development.

Industry Life Cycle

the stages of introduction, growth, maturity, and decline that typically occur over the life of an industry

Maturity Stage

the third stage of the product life cycle, characterized by (1) slowing demand growth, (2) saturated markets, (3) direct competition, (4) price competition, and (5) strategic emphasis on efficient operations.

profit pool

the total profits in an industry at all points along the industry's value chain