Ch. 5 Business-Level Strategy
1. Explain why the concept of competitive advantage is central to the study of strategic management.
*The overall cost leadership generic strategy involves developing a competitive advantage based on low cost position while appealing to an industry wide market.
*The differentiation generic strategy involves developing a competitive advantage based on uniqueness perceived by the customer while appealing to industry wide market.
*The focus generic strategy involves focus on a narrow market segment while developing a competitive advantage of either uniqueness perceived by the customer or low cost position.
For overall cost leadership, firms will be scaling up production, learning to produce more efficiently, and minimizing costs on all activities of the value chain. The pitfalls include too much neglect on specific value chain activities such that competitive parity is not reached, vulnerability to an increase in price on inputs, imitation by competitors, insufficient differentiation such that buyers do not get acceptable quality even at the low price, and customer demands for the low prices, based on the ready availability of information on cost.
For differentiation, firms tend to charge higher prices for their goods, but offer customers some quality or perceived quality advantage for the extra price. The pitfalls include providing a difference that is not perceived to be valuable by customers, differentiating more than customers desire, charging too high a price, imitation by rivals, dilution of brand image, and difference in quality perception between the firm and its buyers.
For focus strategies, firms will appeal to a narrow segment of the market using either a low cost or product uniqueness appeal. The pitfalls include an erosion of price advantages over competitors, imitation of product and service offerings, and loss of focus advantage as less focused competitors offer products and services at prices that the niche customers prefer.
1. The three generic strategies presented by Michael Porter can be shown on two dimensions: competitive advantage and strategic target.
A) rapid change in technology
C) actions by rivals from within and outside of the industry
D) length of time a company is in business
A) celebrity endorsements
B) enabling of mass customization
C) prestige packaging
D) exceptional service
A) asset and cost surgery
B) global expansion
C) selective product and market pruning
D) piecemeal productivity improvements