strategic management chapter 6

The goal of a differentiation strategy

add unique features that will increase the perceived value of goods and services in the minds of consumers so they are willing to pay a higher price

value innovation

aligning innovation with total perceived consumer benefits, price, and cost Successful value innovation requires that a firm's strategic moves lower its costs and also increase the perceived value for buyers.

low-cost-positioned Chevy

broad cost-leadership strategy

strategic trade-offs

choices between a cost or value position. Managers must address the tension between value creation and the pressure to keep cost in check so as not to erode the firm's economic value creation and profit margin.

Economies of scope

describe the savings that come from producing two (or more) outputs at less cost than producing each output individually, even though using the same resources and technology.

Business-level strategy

details the goal-directed actions managers take in their quest for competitive advantage when competing in a single product market "How should we compete?"

generic strategies

differentiation and cost leadership

Tesla

focused differentiation strategy

A firm's business-level strategy determines its strategic position

A strategic profile based on value creation and cost in a specific product market. A valuable and unique position, which: •Meets customer needs. •Maximizes product value. •Lowest possible product cost.

Differentiation + Narrow

Focused Differentiation

Cost + Narrow

Focused cost leadership

blue ocean strategy

Business-level strategy that successfully combines differentiation and cost-leadership activities using value innovation to reconcile the inherent trade-offs. represent untapped market space Netflix: started releasing movies online but so did their competitors so they came out with Netflix originals

Cost + Broad

Cost leadership

The most important cost drivers that strategic leaders can manipulate to keep their costs low are

Cost of input factors: •Raw materials, capital, labor, and IT services. Economies of scale: •Decreases in cost per unit as output increases. Learning-curve effects: •Less time to produce output with experience. Experience-curve effects: Improvements to technology and production processes

Differentiation + Broad

Differentiation

differences in timing

Learning effects occur over time as output accumulates, while economies of scale are captured at one point in time when output increases.

Three Drivers That Increase Perceived Value

Product features. •Increase the perceived value of the product or service offering. Customer service Complements. •Add value to a product or service when they are consumed in tandem. (smartphones with data plan vs without)

Competitive advantage achieved when

Value - Cost > Competitors

To formulate an appropriate business-level strategy, managers must answer the who, what, why, and how questions of competition

Who are the customer segments we will serve? What customer needs, wishes, and desires will we satisfy? Why do we want to satisfy them? How will we satisfy them?

differentiated Cadillac brand

a broad differentiation strategy

differences in complexity

in some production processes, effects from economies of scale can be quite significant, while learning effects are minimal

diseconomies of scale

increases in cost as output increases. As firms get too big, the complexity of managing and coordinating the production process raises the cost, negating any benefits to scale.

competitive advantage is determined jointly by

industry and firm effects

differentiation strategy

seeks to create higher value for customers than the value that competitors create, by delivering products or services with unique features while keeping costs at the same or similar levels, allowing the firm to charge higher prices to its customers.

cost-leadership strategy

seeks to create the same or similar value for customers by delivering products or services at a lower cost than competitors, enabling the firm to offer lower prices to its customers. A cost leader can achieve a competitive advantage as long as its economic value created (V − C) is greater than that of its competitors.

scope of competition

whether to pursue a specific, narrow part of the market or go after the broader market.