Exam 2

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business strategies jet blue used to gain a competitive advantage

differentiation cost leadership

when a company introduces a new product or process or business model with the intent of gaining a competitive advantage, the company is engaging in _____

innovation

most firms consider laggards to be ___________

not worth the effort of pursuing

what is a benefit of pursuing a differentiation strategy when it comes to the power of suppliers

provides protection against an increase in input prices

strategic entrepreneurship

pursuit of social goals while creating profitable business

a firm that successfully leverages network effects can

push its industry into the growth stage

economy of scope

reducing overall production costs by finding multiple uses for its components and facilities

crossing the chasm

successfully transitioning from one stage of the industry life cycle to the next

the customer segment known as ________________________ enjoy testing product prototypes and providing voluntary feedback that companies use to perfect their products

technology enthusiasts

when might a differentiation strategy fail

when the focus on the competition shifts to price rather than unique product features

formula that describes the relationship between value and cost that would suggest that firm A has competitive advantage over from B

(V-C) A>(V-C) B

2 ways standards emerge

- being imposed by government or other agencies - through market competition

name 4 strategic options for a firm in the decline stage of the industry life cycle

- consolidate - maintain - exit - harvest

3 advantages of platform businesses over pipeline businesses

-unlock new sources of value creation and supply - scale more efficiently by eliminating gatekeepers - benefit from community feedback

IKEA uses what framework to implement a blue ocean strategy

eliminate-reduce--raise-create

what variables can managers primarily manipulate in order to answer the question "How should we compete?"

cost & value

at what stage of the industry life cycle does a standard develop

growth

3 who-what-why-how questions of competition managers should answer when formulating a business-level strategy

how will we satisfy our customers needs what customer needs will we satisfy who are the customer segments we will serve

industry life cycle

identifies how industries grow and change over time

diseconomies of scale

increase in output results in an increase in costs

cube square rule

increasing the surface area (size) results in a disproportionate volume (space)

strategic trade off

making a choice between a cost position and a value position

what 2 things can the scope of competition be considered

narrow or broad

the most significant challenge jet blue faced while implementing its new business strategy was

reconciling the trade offs between cutting costs and providing superior service

what is value innovation

simultaneous pursuit of differentiation and low cost, creating a leap in value for both buyers and the company.

what has to happen to a companies value creation and costs in order for a differentiation strategy to strengthen a companies strategic position and boost its competitive advantage

the increase in value creation but exceed the increase in costs

what 2 variables determine a firms strategic position

value creation cost

implementing a blue ocean strategy requires making competition irrelevant and creating a new market space otherwise known as

value innovation

how can cost control help a firm that is pursuing a differentiation strategy

without cost control, an added expense of a new product can offset the increase in perceived value and erode the profit margin

what is the scope of competition

breadth or narrowness of an organizations focus as measured horizontally by the range of industries, market segments, or geographical regions it targets, or vertically by the degree to which it is integrated.

what type of strategies are differentiation and cost leadership

business level strategies

name 4 input factors

capital labor raw materials information technology services

what type of pricing is differentiation strategy associated with

premium

what type of innovation uses new technologies to invade an existing market from the bottom up?

disruptive

managers can increase the perceived value of the firms product or service by focusing on what

customer service

red ocean

defined market, defined competitors and a typical way to run a business in any specific industry. also like a shark infested ocean where the sharks are fighting each other for the same prey.

customers who desire a product because it stokes their imagination and creativity are known as ____________________

early adopters

according to the crossing the chasm framework, the largest difference in consumer expectation is between

early adopters and the early majority

the shakeout stage of the industry life cycle is dominated by what customers

early majority

which 2 customer segments make up the largest percentage of the market potential

early majority and late majority

4 most important cost drivers that managers can manipulate

economies of scale experience curve effects cost of input factors learning curve effects

primary goal for firms in the growth phase of the industry life cycle

establish a strong strategic position so that rivals cannot imitate it easily

primary goal of firms during introduction phase of in industry life cycle

establish themselves as a market participant and position themselves for future growth

in order for a firm to implement a business level strategy, it must limit what 2 things

external threats its own internal weaknesses

value innovation

firm that manages to avoid competition entirely by offering a product or service that creates an uncontested market spaec

in the maturity stage of the industry life cycle, industry growth ______________

flattens or even declines

value curve

graphic depiction of a firms relative performance across its industry factors of competition

after a firm has gained market acceptance with a radical innovation, it will typically follow up with ______

incremental innovations

minimum efficient scale

indicates the level of output needed to bring down the cost per unit as much as possible

customer segment known as early majority enters the market in ____________

large numbers

a firm provides what in a focused cost leadership strategy

low cost products to a niche market

what 2 topics should managers answer questions about when pursuing value innovation

lowering costs increasing perceived customer benefits

blue ocean

market for a product where there is no competition or very less competition

what is the most important competency in the introduction stage of the industry life cycle

marketing

in what stage of the industry life cycle do a few number or large firms compete for a share of the market that has reached its max size

maturity

increases in the value of a product or service that result from an increase in the number of users is known as _______

network effects

a large incumbent firm that has established a number of formalized practices and procedures may have a difficult time producing radical innovations due to its _____________

organizational inertia

which 3 competitive forces can result in erosion of margins for both differentiation and cost leadership business strategies

power of suppliers power of buyers threat of entry

after a standard is established in an industry, firms focus more on ______ innovations

process

3 metrics used by social entrepreneurs to evaluate performance

profit planet people

a firm that successfully leverages network effects can ___________

push its industry into the growth stage

what are 3 threats to a firm pursuing a cost leadership strategy

replacement by innovative substitutes value falling below acceptable threshold competitors adopting similar business strategies

relationship between fixed costs and economies of scale

the amount of fixed costs allocated to each unit of output decreases as output increases

a company with a cost leadership strategy faces significant difficulties when

the focus on competition shifts from price to non price attributes

during growth stage of industry life cycle, firms focus on process innovation in order to ____________ (2 things)

- increase production volume - reduce per-unit production costs

in order for a product or service to be patentable, it must be what 3 things

- non obvious - useful - novel

3 things incumbent firms do to counter disruptive innovations

- protect the low end of the market - continue to innovate - disrupt themselves

2 things innovation can do

- provide firms with a competitive advantage - make existing products or businesses obsolete

name the 5 steps of the s curve development of most industries in order

1 demand for a new product is slow to take off 2 demand accelerates 3 demand decelerates 4 demand turns to 0 5 demand becomes negative as the market contracts

4 steps of innovation process

1 idea 2 invention 3 innovation 4 imitation

5 stages of industry life cycle in order

1 introduction 2 growth 3 shakeout 4 maturity 5 decline

2 factors that determine a firms competitive advantage

cost position relative to competitors value position relative to competitors

innovation ecosystem

a firms embeddedness in a complex network of suppliers, buyers and complementors which require interdependent strategic decision making

what are 2 components of a cost leadership strategy

acceptable value lowest costs in the industry

by using a differentiation strategy, a firm aims to

add unique features that will increase the perceived value of a product

standard

agreed upon solution about a common set of engineering features and design choices

differentiation strategy

aims to create higher value to customers by offering products with unique features but a similar level of costs to those of competing products

during the shakeout stage of the industry life cycle, profits degrade for ____________

all but the most efficient firms

why do many firms fail to implement a blue ocean strategy

because they end up being stuck in the middle unable to increase value and lower costs at the same time

during the shakeout stage of industry life cycle, process innovation ______________

becomes more important

diseconomies of scale occur when a firm ____

becomes too large and complex to manage efficiently

what strategy outlines the steps a manager will take to achieve competitive advantage in a single product market

business level strategy

introductory stage of the industry life cycle is a ___________ intensive process

capital (innovator is investing in designing a unique product)

a disruptive innovation is most likely to be successful if it _______________

captures the low end of the market first

list 2 ways a firm pursuing a blue ocean strategy increase its profit margins

charge a higher price than the cost leader charge a lower price than the differentiator

experience curve

combine both learning effects and product improvements

what occurred to jet blue after 2007

competitive disadvantage

winners in the shakeout are generally ______________

cost leaders


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