MGT 405 Ch. 5

5.

A differentiation strategy consists of creating differences in the firm's product or service offering by creating something that is perceived industrywide as unique and valued by customers. Differentiation can take many forms, including prestige or brand image, technology, innovation, features, customer service, or a dealer network.

12.

A focus strategy is based on the choice of a narrow competitive scope within an industry. A firm following this strategy selects a segment or group of segments and tailors its strategy to serve them. The essence of focus is the exploitation of a particular market niche

13.

A profit pool is defined as the total profits in an industry at all points along the industry's value chain.

2.

Examples of overall cost leadership within primary value chain activities may involve the effective layout of receiving dock operations (inbound logistics) and support value chain activities may include expertise in process engineering (technology development). Refer to Exhibit 5.3

27.

Four basic strategies are available in the decline phase: maintaining, harvesting, exiting, or consolidating.

28.

Harvesting involves obtaining as much profit as possible and requires that costs be reduced quickly.

14.

Hiring new employees, meeting with customers, ordering supplies, and addressing government regulations; all have some costs associated with them that can be lowered with the use of the Internet. Removing intermediaries also lowers transaction costs, and Internet search reduces the need for travel.

1.

How firms compete with each other and how they attain and sustain competitive advantages go to the heart of strategic management. In short, the key issue becomes why some firms outperform others and enjoy such advantages over time.

26.

In the decline stage of the industry life cycle, there are few segments, the emphasis on process design is low, and the major functional areas of concern are general management and finance, according to Exhibit 5.12.

19.

In the introduction stage, products are unfamiliar to consumers. Market segments are not well defined, and product features are not clearly specified. The early development of an industry typically involves low sales growth, rapid technological change, operating losses, and the need for strong sources of cash to finance operations. Since there are few players and not much growth, competition tends to be limited.

24.

In the maturity stage of the industry life cycle, advantages based on efficient manufacturing operations and process engineering become more important for keeping costs low as customers become more price sensitive.

23.

In the maturity stage of the industry life cycle, aggregate industry demand softens. As markets become saturated, there are few new adopters. Rivalry among existing rivals intensifies because of fierce price competition at the same time that expenses associated with attracting new buyers are rising.

22.

In the maturity stage of the industry life cycle, rivalry among existing rivals intensifies because of fierce price competition at the same time that expenses associated with attracting new buyers are rising. Advantages based on efficient manufacturing operations and process engineering become more important for keeping costs low as customers become more price sensitive. It also becomes more difficult for firms to differentiate their offerings, because users have a greater understanding of products and services.

17.

Many experts agree that the net effect of the digital economy is fewer rather than more opportunities for sustainable advantages. This means strategic thinking becomes more important. More specifically, the Internet has provided all companies with greater tools for managing costs

30.

Piecemeal productivity improvements include improving business processes by reengineering them, benchmarking specific activities against industry leaders, encouraging employee input to identify excess costs, increasing capacity utilization, and improving employee productivity.

11.

Potential pitfalls of a differentiation strategy include the idea that perceptions of differentiation may vary between buyers and sellers. The issue here is that "beauty is in the eye of the beholder." Companies must realize that although they may perceive their products and services as differentiated, their customers may view them as commodities.

8.

Supplier power is also decreased because there is a certain amount of prestige associated with being the supplier to a producer of highly differentiated products and services.

20.

The growth stage is the second stage of the product life cycle, characterized by (1) strong increases in sales, and (2) growing competition.

16.

With focus strategies, the Internet offers new avenues in which to compete because they can access markets less expensively (low cost) and provide more services and features (differentiation). Some claim that the Internet has opened up a new world of opportunities for niche players who seek to access small markets in a highly specialized fashion.

9.

Differentiation provides protection against rivalry since brand loyalty lowers customer sensitivity to price and raises customer switching costs.

7.

Differentiation provides protection against rivalry since brand loyalty lowers customer sensitivity to price and raises customer switching costs. By increasing a firm's margins, differentiation also avoids the need for a low-cost position.

4.

A product's sensitivity to price strongly affects a firm's ability to exploit the experience curve. Cutting the price of a product with high demand elasticity, where demand increases when price decreases, rapidly creates consumer purchases of the new product. So by decreasing price and increasing demand, a firm gains manufacturing experience in that particular product, which drives down per unit production costs.

29.

A study of 260 mature businesses in need of a turnaround identified three strategies used by successful companies: asset and cost surgery, selective product and market pruning, and piecemeal productivity improvements.

15.

Among the most striking differentiation trends are new ways to interact with consumers. In particular, the Internet has created new ways of differentiating by enabling mass customization, which improves the response to customer wishes.

6.

Examples of value chain activities for differentiation include support value chain activities like excellent applications engineering support (technology development) and facilities that promote a positive firm image (firm infrastructure).

25.

In the maturity stage of the industry life cycle, rivalry among existing rivals intensifies because of fierce price competition at the same time that expenses associated with attracting new buyers are rising. It also becomes more difficult for firms to differentiate their offerings, because users have a greater understanding of products and services.

21.

In the maturity stage of the industry life cycle, there are many segments, competition is very intense, and the emphasis on process design is high, according to Exhibit 5.12.

18.

Industry life cycles are important because the emphasis on various generic strategies, functional areas, value-creating activities, and overall objectives varies over the course of an industry life cycle.

3.

Key to an overall cost leadership strategy is the experience curve, which refers to how business "learns" to lower costs as it gains experience with production processes. With experience, unit costs of production decline as output increases in most industries.

10.

Potential pitfalls of a differentiation strategy include 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, or perceptions of differentiation may vary between buyers and sellers.