strategic management exam 3

rate of new product adaption is

increasing

best-cost strategy

integrating both cost and value positions -more complex but very effective -difficult because each position requires distinct value chain activities ex: Ikea or Chipotle (good quality at an efficient cost)

co-location

involves goods and services offered by different companies in the same physical space -attract a bigger set of customers than individual locations -ex: many fast food restaurants tend to locate next to each other

strategic alliance

involves two or more firms cooperating but NO NEW ENTITY IS FORMED -typically used to share expenses or knowledge

awareness (AMC framework)

knowing what competitors are doing

business-level strategies

most industries have firms that follow each of the generic strategies -success depends on your strategy matching your resources and environmental circumstances

customization

moves beyond differentiation by allowing customers to purchase customized products/ services ex: Nike.com allows customers to build their own shoes

mutual forbearance

occurs when rivals do not act aggressively because each firm recognizes the other can retaliate in multiple markets ex: you rarely see Under Armor aggressively target Nike in fear of reprisal

economies of scope

savings that come from producing two or more outputs at less cost than producing each output individually ex: Taco Bell already has all the fixed capital to produce breakfast items, so they added them to their menu to increase economies of scope

quality (value and cost driver)

signals its durability and reliability -can increase value, but also can decrease costs

early adopters

small group of people that are price/ quality insensitive

diseconomies of scale

spend more to make more

relational view

suggests firms only attain competitive advantage if they develop important inter-organizational relationships (relationships between firms)

product features (value driver)

turns commodity products into differentiated products that command a premium price ex: fruit vs. organic fruit

bricolage

using available materials and resources to create something new ex: Jacob Davis used canvas/ duck cloth from tents to make durable pants that could withstand 19th century labor ex: using paper towel rolls as a speaker

questions under "how should a firm compete"

-WHO will we serve? -WHAT customer needs/ desires will we satisfy? -WHY do we want to satisfy them? -HOW will we satisfy our customer needs?

advantages of differentiation

-ability to charge higher prices -strong profit margins -increased customer loyalty -lower customer price sensitivities -decreases competitiveness of new industry entrants

scope of operation

-broad target customer segment -narrow target customer segment

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 perception of value -customers may switch to low-cost alternatives if economic conditions change (customers don't feel as wealthy)

source of competitive advantage

-cost based -unique based

cost drivers

-cost of input factors -economies of scale -learning-curve effect -experience curve

what defines a "narrow market" varies across firms including

-customer segment -sales channel

advantages of cost leadership strategy

-firms with higher market shares enjoy higher profits -can more easily endure pressure on prices such as during a price war

first mover disadvantages

-free-rider effects (imitation) -resolution of market/ technological uncertainty -changes in customer tastes and preferences -incumbent inertia (get stuck in the same processes, can't change with the market)

levers that improve a firm's strategic position

-increasing perceived value -decreasing costs

disadvantages of cooperation

-loss of control over operations -transfer of valuable secrets -opportunism by partner firms -stigma spillover (when something bad happens to partner firm, it can damage your reputation too)

disadvantages of cost leadership strategy

-may suffer from perceptions of low quality -difficult to attract customers that are brand loyal; struggle in fragmented markets (ex: Coke vs. Pepsi) -generally smaller profit margins (must sell a lot to make a lot) -a focus on costs may lead firms to be late-movers on key trends -a focus on efficiency may make it difficult to change

first mover advantages

-preemption of resources -economies of scale -experience and learning effects -customer loyalty and branding effects -can establish the dominant design/ institutional standards

value drivers that improve a firm's strategic position

-product features -customer service -complements

value and cost drivers of best-cost strategy

-quality -economies of scope -customization -innovation -structure, culture, and routines

the focus of competition in differentiation tends to be on

-unique product features, service, and new product launches -market and promotion -NOT PRICES

industry/ product lifecycle

1. introduction or embryonic phase (dominant design emerges) 2. growth phase 3. shake-up phase 4. mature phase 5. decline phase

joint venture

a cooperative arrangement that involves two or more firms each contributing to the creation of a new entity -ownership, operations, decision-making, and profits is shared by contributing firms -can be used to take advantage of a shared opportunity OR in response to a shared threat

motivation (AMC framework)

a desire to respond

fighting brands

a lower-end brand that is used to regain market share without damaging existing higher-quality brands ex: GM introduced the Geo brand in the late 1980's in response to increasing competition from small, inexpensive Japanese cars

blue ocean strategy

a new, untapped market rather than competition with rivals in an existing market place ex: Nintendo Wii transformed video game systems into more interactive multiplayer experiences

foothold

a small position from which to grow -minimize costs and showcase a firm's products and services -how firms try to break into new markets ex: Ikea traditionally enters a new country with a single store (wait to see how people respond and then expand)

cost of input factors (cost driver)

access to lower-cost input factors such as raw materials, capital, labor, and IT services

complements (value driver)

add value to a product or service when used in tandem ex: AT&T U-Verse allows users to bundle services

customer service (value driver)

additional value is created by focusing on superior customer service and responsiveness ex: in addition to product quality, Chick Fil A's focus on customer service adds value to their products

capability (AMC framework)

an ability to respond

disruptive innovation

an innovation that conflicts and threatens to replace traditional approaches in an industry ex: Smartphones have almost completely replaced video cameras

structure, culture, and routines

appropriate factors that support internal value chain activities that help firms integrate cost and value positions -low-cost position requires a structure that emphasizes cost control -differentiation requires a structure that allows for creativity and customer responsiveness

attack (A.I.M)

attacking along another dimension ex: Apple responded to lower-priced Dell computers by boosting performance and versatility

generic business strategies

business-level strategies that can be deployed in ANY ORGANIZATION -two competitive dimensions are key to business-level strategy: 1. source of competitive advantage 2. scope of operation

experience curve (cost driver)

captures both learning effects and PROCESS IMPROVEMENTS that allow a firm to move to a new learning curve -economies of learning -process improvements

focused cost leadership

compete on price in a narrow market -not always the lowest prices in the industry, but low prices relative to other firms in the target market ex: Papa Murphys' targets value-conscious take-and-bake customers

economies of scale (cost driver)

costs per unit of producing a product decreases as firms gain greater market share -costs more in the beginning

focused differentiation

depends on offering unique features that fulfill needs of a narrow target market ex: Whole Foods sells only organic and natural food items to a discerning set of customers willing to pay high prices

process improvements (experience curve)

describe a new production method or technology that improves efficiency -function of process innovations

innovation

describes any new product, process, or any modifications of existing products or processes ex: Apple innovated iTunes

rising costs _____ profitability and _____ economic value created

erode (destroy); reduce -spend money to make money

value drivers add to a firm's offering ONLY IF the added value creation ______ the increased costs

exceeds

red market

existing market place

ambidextrous organizations can effectively focus on

exploration and exploitation

AMC framework

factors that determine the likelihood of a firm responding to competitive rivals Awareness Motivation Capability

stuck in the middle (best cost strategy)

features are not unique enough to differentiate but not necessarily low prices OR if outmaneuvered by competitors

second pricing option

firms able to adequately control costs can price their products similar to competitors to gain additional market share ex: Hyatt is able to leverage their superior brand name in luxury hotel market to gain additional market share for Hyatt Place hotels in low to moderately priced

business-level strategy broadly answers what question?

"how should a firm compete?"

match (A.I.M)

firms follow rivals ex: many universities have followed recent distance education trends by introducing online degree programs

learning-curve effects (cost driver)

firms learn how to do things better by doing them repeatedly over time

multipoint competition

firms that face the same rival in more than one market ex: Coke and Pepsi compete in many markets around the world

differentiation

goal is to add unique features to a product in an effort to increase their perceived value ex: Nordstrom- offers designer merchandise with exceptional service

cost leadership strategy (cost leader)

goal is to reduce the firm's cost below competitors costs while offering similar value ex: Walmart- attracts a large customer base and keeps prices low by buying massive quantities of goods from suppliers

business-level strategy

goal-directed actions managers take inn their quest for competitive advantage in a SINGLE PRODUCT MARKET

"taking A.I.M"

how firms can respond to rivals introducing disruptive innovation -Attack -Ignore -Match

ignore (A.I.M)

if strategic leaders feel the innovation is a fad and/or unlikely to affect their market share, they may just continue as normal

economies of learning (experience curve)

improved efficiencies based on accumulated knowledge from experience