Cost Leadership vs Differentiation – Flashcards
Unlock all answers in this set
Unlock answersquestion
4 Levels of strategic decisions and choices
answer
-basic competitive strategy options -complementary growth strategy options -functional strategies to support strategic choices -timing startegies for company moves
question
What determines competitive advantage
answer
Firm and Industry effects
question
Industry effects
answer
Industry attractiveness (5 forces model, complements) Within industry (Strategic groups)
question
Firm Effects
answer
Value position (relative to competitors) Cost position (relative to competitors) lead to Business strategy (cost leadership, differentiation, integration)
question
Differentiation
answer
Providing something unique that is valuable to the buyer beyond simply offering a low price -total customer responsiveness, creating value at each stage of relationship -focus on customer needs and wants
question
Effective differentiation strategies
answer
-Understand buyers need, behaviours and values -Incorporate features that appeal to buyers and create sustainably distinctive product -use higher prices to recoup differentiation costs
question
Effective Differentiations strategies do what:
answer
-Difficult to duplicate or imitate -create switching costs
question
Differentiation Advantages
answer
-command premium prices -increased sales due to attractive differentiation -brand loyalty that bonds buyers to the firms products
question
Differentiation risks
answer
-Adding too mucho that product exceeds the needs and use pattern of most buyers -overspending on efforts to differentiation the firms product -competitors achieve new, more valued point of differentiation
question
Drivers of uniqueness
answer
-R&D -technology and innovation -input quality -employee skill and training -sales and marketing -quality control -product flues and performance -customer services
question
Whats necessary in differentiation strategy
answer
-select product positioning in relation to product attributes -select target customer group -ensure customer/product compatibility -evaluate costa and benefits
question
Differentiate via value chain
answer
approaches to enhancing differentiation through changes in the value chain -coordinating with channel allies to enhance customer perceptions of value -coordinating with suppliers to better address customer needs
question
Differentiation Strategy Works best when
answer
-diversity of buyer needs and uses for the product -many ways that differentiation can have value for buyers -few rivals follow similar approach -rapid change in technology and product features
question
Skills that foster differentiation (few examples)
answer
-strong marketing -product engineering -creative talent and flair
question
Requirements to support and sustain differentiation activities
answer
-strong coordination among R and D and product dev, and marketing -subject measures and incentives -amenities to attract higher skilled labor, -closeness to cusotmers -popel skilled in sales and operations
question
Cost
answer
Find and exploit all sources of cost advantage and sell a standard, no-frills product -primary basis of competition -firms cumulative costs across its overall value chain must be lower than competitors -relentless in pursuit of savings
question
Effective low cost approaches
answer
-Pursue cost savings that are difficult imitate -avoid reducing product quality to unacceptable levels -perform value chain actives at more cost effectively than rivals -revamp the firms overall value chain to eliminate or bypass cost-producing activities
question
Securing a cost advantage
answer
-use lower cost inputs and hold minimal assts -offer only essential product features -offer only limits product lines -use low cost distribution channels -use most economical delivery methods
question
Low cost Advantages
answer
-greater total profits and increased market share gained from underpricing competitors -larger profit margins when selling products at prices comparable to, and competitive with rivals
question
Low cost Risks
answer
-low pricing does not attract enough buyers -rivals retaliatory price cutting set off a price war
question
Drivers of costs advantage
answer
-economies of scale -economies of learning -production techniques -product design -input costs -capability utilization -residual efficiency
question
To get ongoing success as a low cost provider
answer
Must out manage rivals in finding ways to perform value chain activities faster, more accurately, and more cost0effectively -spending aggressively on resources and capabilities that promise to drive costs out of the business -carefully estimating the cost savings of new technologies before investing in them -constantly reviewing cost saving resources to ensure they remain competitively superior
question
Low costs works best when
answer
- Price competition among rival sellers is vigorous. - Identical products are available from many sellers. - Few ways to differentiate industry products. - Most buyers use the product in the same ways. - Buyers incur low costs in switching among sellers. - Majority of industry sales are made to a few, large volume buyers. - New entrants can use introductory low prices to attract buyers
question
Low cost pitfalls to avoid
answer
- Engage in overly aggressive price cutting that does not result in unit sales gains large enough to recoup forgone profits - Rely on cost advantage that is not sustainable - Become too fixated on cost reduction - Have a rival discover a new lower-cost value chain approach or develop a cost-saving technological breakthrough.
question
Cost leadership requirements
answer
-Skills and resources foster cost leadership -Organization requirements to support and sustain cost leadership activities
question
Cost leadership strategy key elements
answer
• Scale-efficient plants • • Design for manufacture • • Control of overheads and • R&D • • Process innovation • • Outsourcing/offshoring • Avoiding marginal customers
question
Differentiation strategy key elements
answer
• Emphasis on branding • advertising, design, service, • quality, and new product • development
question
Cost Leadership resource and organizational requirements
answer
-Access to capital -Process engineering skills Frequent reports -Tight cost control -Specialization of jobs and functions -Incentives linked to quantitative targets accounts
question
Differentiation Resource and organizational requirements
answer
-Marketing abilities -Product engineering skills Cross-functional coordination Creativity • Research capability • Incentives linked to qualitative performance targets
question
Review leadership dimensions
answer
porters forces benefits and risks
