BADM 449 - Exam 2 questions with f f f f f f
relevant answers
f f
Chapter 6: Business Strategy (Differentation, Cost Leadership, Blue Oceans) - answer-
f f f f f f f f f f
Business Level Strategy - answer-Goal direct actions managers take in their quest for
f f f f f f f f f f f f
competitive advantage when competing in a single product market
f f f f f f f f f f
* HOW should we COMPETE?
f f f f f
(who, what, why, how)
f f f
Strategy Diamond (5) - answer-1. Arena's: Where will we be active (and with how much
f f f f f f f f f f f f f f
emphasis)
f f
2. Vehicles: How will we get there?
f f f f f f f
3. Staging: What will be our speed and sequence of moves?
f f f f f f f f f f f
4. Differentiators: How will be WIN?
f f f f f f
5. Economic Logic: How will RETURNS be obtained?
f f f f f f f
Basic Principles of Strategy 1: Value Based Strategy - answer-
f f f f f f f f f
Generic Business Strategies - answer-BROAD Competitive Scope (market size)
f f f f f f f f f
1. Differentiation: create HIGH value for customers than competition by delivering products
f f f f f f f f f f f
with UNIQUE features, while keeping costs the same, and charging HIGHER PRICES
f f f f f f f f f f f f f
2. Cost Leadership : create same or similar value for customers by delivering products at
f f f f f f f f f f f f f f
lower cost than competition, thus charging LOWER PRICES to customers
f f f f f f f f f f
Focused Strategies: f f
NARROW Competitive Scope (serve a particular market segment)
f f f f f f f f
3. Focused Differentiation
f f f
4. Focused Cost Leadership
f f f f
Generic because they can be used by any organization, independent of industry!
f f f f f f f f f f f
Differentiation Strategy and it's Value Drivers f f f f f f
Goal of Differentiation?
f f f
,3 Value Drivers - answer-* Differentiation seeks to add unique features to increase
f f f f f f f f f f f f
perceived VALUE of products so that competitors cannot easily match and consumers
f f f f f f f f f f f f
want to pay more
f f f f f
--> Create consumer PREFERENCES for firm's products
f f f f f f f
Value Drivers (increase perceived value)
f f f f f
1. PRODUCT ATTRIBUTES: exploiting the actual product
f f f f f f f
- Product features (turn commodity into differentiated product)
f f f f f f f f
- Product complexity: multiple functions on a watch
f f f f f f f f
- Timing of introduction to market (being first)
f f f f f f f f
- Location
f f
2. CUSTOMER RELATIONSHIPS/ SERVICE: focus on customer service to increase
f f f f f f f f f
value
f f
- Customization: creating a unique braclet for customer
f f f f f f f f
- Consumer Marketing: creating brand loyalty to a soap through advertising
f f f f f f f f f f f
- Reputation: good customer service, give to community
f f f f f f f f
3. COMPLEMENTS: Use complements to add value when product and complement are
f f f f f f f f f f f
consumed together (DVR)
f f f f
* FIRM LINKAGES
f f f
- Links among functions in firm: reuse a circuit board designed in one division in other
f f f f f f f f f f f f f f f
divisions
f f
- Linkages with OTHER firms: sporting goods store sponsors race and in turn receives free
f f f f f f f f f f f f f f
advertising
f f
- Product Mix: furniture store begins to sell home gym equip, computes, lawn mowers
f f f f f f f f f f f f f
Cost Leadership f f
3 Cost Drivers? - answer-Goal: reduce the firm's cost below competitors while offering
f f f f f f f f f f f f
adequate value (focuses on decreasing costs in production)
f f f f f f f f f
Cost Drivers: f f
1. COST OF INPUT FACTORS: access to lower cost input factors (raw materials, capital,
f f f f f f f f f f f f f
labor, IT services)
f f f f
2. ECONOMIES of SCALE: average total cost/unit decreases as you produce MORE
f f f f f f f f f f f
output
f f
(spread out fixed cost, employ specialized equipment, take advantage of physical
f f f f f f f f f f
properties)
f f
3. LEARNING CURVE: The more we learn, the more efficiently we produce something and
f f f f f f f f f f f f f
it takes less and less time to produce same output (STEEPER curve -- more learning)
f f f f f f f f f f f f f f f f
- increased individual skills
f f f f
, - improved organizational routines
f f f
Differentiation f
Benefits f
Risks - answer-Benefits:f f f
Threat of Entry: f f f
Benefit - Protection against entry due to INTANGIBLE resources such as a reputation for
f f f f f f f f f f f f f
innovation, quality, or customer service
f f f f f f
Risks -- Erosion of margins// replacement
f f f f f f
Power of Suppliers: f f f
Benefit - Protection against increase in INPUT prices, which can be passed on to
f f f f f f f f f f f f f
customers
f f
Power of Buyers: f f f
Benefit - Protection against DECREASE in SALES
f f f f f f
Threat of Substitutes: f f f
Benefit: Protection against substitute products due to DIFFERENT appeal
f f f f f f f f f
Risk - Replacement (especially in innovation)
f f f f f f
Rivalry Among Existing Competitors: f f f f
Benefit - Protection against competitors if product has enough appeal to remain at
f f f f f f f f f f f f
premium price
f f f
Risks - f f
Focus of competition shifts to price
f f f f f f
Increasing differentiation of product features doesn't create value but RAISES COSTS
f f f f f f f f f f f
Increasing differentiation to raise costs above acceptable threshold
f f f f f f f
Differentiation: Risks (4) - answer-1. Failing to increase buyer's WTP higher pricesf f f f f f f f f f f f
2. UNDERESTIMATING costs of differentiation
f f f f f
3. Lower cost IMITATION
f f f f
4. Over fulfilling buyer's needs
f f f f
Cost Leadership:f
Benefits f
Risks - answer-Threat of Entry:
f f f f f
Benefit - Protection against entry from ECONOMIES OF SCALE
f f f f f f f f f
Risks - Erosion of margins/ replacement
f f f f f f
Power of Suppliers: f f f
Benefit: protection against increase in INPUT prices which can be absorbed
f f f f f f f f f f f
Risk: erosion of margins
f f f f
relevant answers
f f
Chapter 6: Business Strategy (Differentation, Cost Leadership, Blue Oceans) - answer-
f f f f f f f f f f
Business Level Strategy - answer-Goal direct actions managers take in their quest for
f f f f f f f f f f f f
competitive advantage when competing in a single product market
f f f f f f f f f f
* HOW should we COMPETE?
f f f f f
(who, what, why, how)
f f f
Strategy Diamond (5) - answer-1. Arena's: Where will we be active (and with how much
f f f f f f f f f f f f f f
emphasis)
f f
2. Vehicles: How will we get there?
f f f f f f f
3. Staging: What will be our speed and sequence of moves?
f f f f f f f f f f f
4. Differentiators: How will be WIN?
f f f f f f
5. Economic Logic: How will RETURNS be obtained?
f f f f f f f
Basic Principles of Strategy 1: Value Based Strategy - answer-
f f f f f f f f f
Generic Business Strategies - answer-BROAD Competitive Scope (market size)
f f f f f f f f f
1. Differentiation: create HIGH value for customers than competition by delivering products
f f f f f f f f f f f
with UNIQUE features, while keeping costs the same, and charging HIGHER PRICES
f f f f f f f f f f f f f
2. Cost Leadership : create same or similar value for customers by delivering products at
f f f f f f f f f f f f f f
lower cost than competition, thus charging LOWER PRICES to customers
f f f f f f f f f f
Focused Strategies: f f
NARROW Competitive Scope (serve a particular market segment)
f f f f f f f f
3. Focused Differentiation
f f f
4. Focused Cost Leadership
f f f f
Generic because they can be used by any organization, independent of industry!
f f f f f f f f f f f
Differentiation Strategy and it's Value Drivers f f f f f f
Goal of Differentiation?
f f f
,3 Value Drivers - answer-* Differentiation seeks to add unique features to increase
f f f f f f f f f f f f
perceived VALUE of products so that competitors cannot easily match and consumers
f f f f f f f f f f f f
want to pay more
f f f f f
--> Create consumer PREFERENCES for firm's products
f f f f f f f
Value Drivers (increase perceived value)
f f f f f
1. PRODUCT ATTRIBUTES: exploiting the actual product
f f f f f f f
- Product features (turn commodity into differentiated product)
f f f f f f f f
- Product complexity: multiple functions on a watch
f f f f f f f f
- Timing of introduction to market (being first)
f f f f f f f f
- Location
f f
2. CUSTOMER RELATIONSHIPS/ SERVICE: focus on customer service to increase
f f f f f f f f f
value
f f
- Customization: creating a unique braclet for customer
f f f f f f f f
- Consumer Marketing: creating brand loyalty to a soap through advertising
f f f f f f f f f f f
- Reputation: good customer service, give to community
f f f f f f f f
3. COMPLEMENTS: Use complements to add value when product and complement are
f f f f f f f f f f f
consumed together (DVR)
f f f f
* FIRM LINKAGES
f f f
- Links among functions in firm: reuse a circuit board designed in one division in other
f f f f f f f f f f f f f f f
divisions
f f
- Linkages with OTHER firms: sporting goods store sponsors race and in turn receives free
f f f f f f f f f f f f f f
advertising
f f
- Product Mix: furniture store begins to sell home gym equip, computes, lawn mowers
f f f f f f f f f f f f f
Cost Leadership f f
3 Cost Drivers? - answer-Goal: reduce the firm's cost below competitors while offering
f f f f f f f f f f f f
adequate value (focuses on decreasing costs in production)
f f f f f f f f f
Cost Drivers: f f
1. COST OF INPUT FACTORS: access to lower cost input factors (raw materials, capital,
f f f f f f f f f f f f f
labor, IT services)
f f f f
2. ECONOMIES of SCALE: average total cost/unit decreases as you produce MORE
f f f f f f f f f f f
output
f f
(spread out fixed cost, employ specialized equipment, take advantage of physical
f f f f f f f f f f
properties)
f f
3. LEARNING CURVE: The more we learn, the more efficiently we produce something and
f f f f f f f f f f f f f
it takes less and less time to produce same output (STEEPER curve -- more learning)
f f f f f f f f f f f f f f f f
- increased individual skills
f f f f
, - improved organizational routines
f f f
Differentiation f
Benefits f
Risks - answer-Benefits:f f f
Threat of Entry: f f f
Benefit - Protection against entry due to INTANGIBLE resources such as a reputation for
f f f f f f f f f f f f f
innovation, quality, or customer service
f f f f f f
Risks -- Erosion of margins// replacement
f f f f f f
Power of Suppliers: f f f
Benefit - Protection against increase in INPUT prices, which can be passed on to
f f f f f f f f f f f f f
customers
f f
Power of Buyers: f f f
Benefit - Protection against DECREASE in SALES
f f f f f f
Threat of Substitutes: f f f
Benefit: Protection against substitute products due to DIFFERENT appeal
f f f f f f f f f
Risk - Replacement (especially in innovation)
f f f f f f
Rivalry Among Existing Competitors: f f f f
Benefit - Protection against competitors if product has enough appeal to remain at
f f f f f f f f f f f f
premium price
f f f
Risks - f f
Focus of competition shifts to price
f f f f f f
Increasing differentiation of product features doesn't create value but RAISES COSTS
f f f f f f f f f f f
Increasing differentiation to raise costs above acceptable threshold
f f f f f f f
Differentiation: Risks (4) - answer-1. Failing to increase buyer's WTP higher pricesf f f f f f f f f f f f
2. UNDERESTIMATING costs of differentiation
f f f f f
3. Lower cost IMITATION
f f f f
4. Over fulfilling buyer's needs
f f f f
Cost Leadership:f
Benefits f
Risks - answer-Threat of Entry:
f f f f f
Benefit - Protection against entry from ECONOMIES OF SCALE
f f f f f f f f f
Risks - Erosion of margins/ replacement
f f f f f f
Power of Suppliers: f f f
Benefit: protection against increase in INPUT prices which can be absorbed
f f f f f f f f f f f
Risk: erosion of margins
f f f f
