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