Which of the following are methods of addressing a cost disadvantage in the forward portion of an industry value chain quizlet?
|
Strategy and the Value Proposition Show Competing to successfully gain a competitive advantage involves giving buyers what they perceive as superior value proposition by offering:
Competitive Strategies and Market Positioning Competitive Strategy Deals exclusively with the specifics of management's game plan for competing successfully in securing a particular competitive advantage over rivals that offers superior value to customers, strengthens its market position, and counters the maneuvers of its rivals The two principal factors that distinguish one competitive strategy from another are: CORE CONCEPT: Competitive Strategy A competitive strategy concerns the specifics of management's game plan for competing successfully and securing a competitive advantage over rivals in the marketplace. The Five Generic Competitive Strategies 1. A low-cost provider strategy—striving to achieve lower overall costs than rivals and appealing to a broad spectrum of customers, usually by underpricing rivals 2. A broad differentiation strategy—seeking to differentiate the firm's product or service from rivals' in ways that will appeal to a broad spectrum of buyers 3. A focused low-cost strategy—concentrating on a narrow buyer segment (or market niche) and outcompeting rivals by having lower costs than rivals and thus being able to serve niche members at a lower price 4. A focused differentiation strategy—concentrating on a narrow buyer segment (or market niche) and outcompeting rivals by offering niche members customized attributes that meet their tastes and requirements better than rivals' products 5. A best-cost provider strategy—giving customers more value for the money by satisfying buyers' expectations on key quality/features/performance/service attributes while beating their price expectations. This option is a hybrid strategy that blends elements of low-cost provider and differentiation strategies; the aim is to have the lowest (best) costs and prices among sellers offering products with comparable differentiating attributes Low-Cost Provider Strategies A powerful competitive approach with price-sensitive buyers when a firm's offering: -Has meaningfully lower costs than rivals—but not necessarily the absolutely lowest possible cost CORE CONCEPT: Low-Cost Leader A low-cost leader's basis for competitive advantage is lower overall costs than competitors. Success in achieving a low-cost edge over rivals comes from eliminating and/or curbing "nonessential" activities and/or outmanaging rivals in performing essential activities. Translating a Low-Cost Strategy into Attractive Profit Performance Option 1: Option
2: The Two Major Avenues for Achieving Low-Cost Leadership 1. Performing essential value chain activities more cost-effectively than rivals 2. Revamping the firm's overall value chain to eliminate or bypass some cost-producing activities altogether CORE CONCEPT: Cost Driver A cost driver is a factor having a strong effect on the cost of a company's value chain activities and cost structure. Cost-Efficient Management of Value Chain Activities Striving to capture all available economies of scale. Taking full advantage of experience and learning curve effects. Trying to operate facilities at full capacity. Substituting lower-cost inputs whenever there is little or no sacrifice in product quality or product performance. Employing advanced production technology and process design to improve overall efficiency. Using communication systems and information technology to achieve operating efficiencies. Using the company's bargaining power vis-à-vis suppliers to gain concessions. Being alert to the cost advantages of outsourcing and vertical integration. Pursuing ways to boost labor productivity and lower overall compensation costs. Revamping the Value Chain Reengineering the firm's value chain by: -Selling directly to consumers and cutting out the activities and costs of distributors and dealers Pitfalls to Avoid in Pursuing a Low-Cost Provider Strategy Overly Aggressive Price Cutting Relying on easily imitated cost reductions Becoming too fixated
on cost reduction Broad Differentiation Strategies Attractive competitive approaches to use whenever buyers' needs and preferences are too diverse to be fully satisfied by a standardized product or service. CORE CONCEPT: Broad Differentiation Strategy The essence of a broad differentiation strategy is to offer unique product or service attributes that a wide range of buyers find appealing and worth paying for. Benefits of Successful Differentiation Successful execution of a differentiation strategy allows a firm to: -Command a premium price. Approaches to Differentiation Companies pursuing
differentiation: CORE CONCEPT: Uniqueness Driver -A uniqueness driver is a value chain activity or factor that can have a strong effect on customer value and creating differentiation. Managing the Value Chain in Ways That Enhance Differentiation Activities That Enhance Differentiation Revamping the Value Chain System to Increase Differentiation Approaches to enhancing differentiation through changes in the value chain system -Coordinating with downstream channel allies to enhance customer value Delivering Superior Value via a Differentiation Strategy 1. Include product attributes and user features that lower the buyer's costs Perceived Value and the Importance of Signaling Value A differentiation strategy's price premium reflects the value actually delivered to the buyer and the value perceived by the buyer. It is important to signal value when: When a Differentiation Strategy Works Best 1. Buyer needs and uses of the product are diverse. Pitfalls to Avoid in Pursuing a Differentiation Strategy 1. Pursuing a differentiation strategy keyed to product or service attributes that are easily and quickly copied Focused (or Market Niche) Strategies Focused strategies are developed especially for competing in a narrow piece of the total market as defined by geographic uniqueness or special product attributes. Focused strategies are appealing to smaller and medium-sized firms that may lack the breadth and depth of resources to tackle going after a whole market customer base. A Focused Low-Cost Strategy A strategy that aims at securing a competitive advantage by serving buyers in the target market niche at a lower cost and a lower price than rival competitors. A strategy that achieves its cost advantage in the same way as for low-cost leadership—by outmanaging rivals in keeping costs low and bypassing or reducing nonessential activities. Focused Differentiation Strategy Focused differentiation strategy is keyed to offering carefully designed products or services to appeal to the unique preferences and needs of a narrow, well-defined group of buyers (as opposed to a broad differentiation strategy aimed at many buyer groups and market segments). When a Focused Low-Cost or Focused Differentiation Strategy Is Viable The target market niche is big enough to be profitable and offers good growth potential. Market leaders have chosen not to compete in the niche—focusers can avoid battling head-to-head against the biggest and strongest competitors. It is costly or difficult for multi-segment competitors to meet the specialized needs of niche buyers and at the same time satisfy the expectations of mainstream customers. The market has many different niches and segments, allowing a focuser to pick a niche suited to its strengths and capabilities. Few rivals attempt to specialize in the same target segment. The Risks of a Focused Low-Cost or Focused Differentiation Strategy Competitors will find effective ways to match a focuser's capabilities in serving the target niche. The preferences and needs of niche members to shift over time toward the product attributes desired by the majority of buyers. The segment may become so attractive it is soon inundated with competitors, intensifying rivalry, and splintering segment profits. Best-Cost Provider Strategies A hybrid of low-cost provider and differentiation strategies that: -Involves giving customers more value for money by satisfying buyer expectations on key quality/features/ performance/service attributes while exceeding customer expectations on price CORE CONCEPT: Best-Cost Provider Strategies Best-cost provider strategies are a hybrid of low-cost provider and differentiation strategies that aim at satisfying buyer expectations on key quality, features, performance, and service attributes while beating customer expectations on price. Employing Best-Cost Strategies Profitable best-cost
strategies are contingent on the firm having the capability to deliver attractive or upscale attributes at a lower cost than rivals through: When a Best-Cost Provider Strategy Works Best A best-cost provider strategy works best in markets where: -Product differentiation is the norm. The Danger of an Unsound Best-Cost Provider Strategy Losing at both ends of the market: -Dual vulnerability to both low-cost providers and high-end differentiators in not having
Core Concept: Competitive Strategy A company's competitive strategy should be well matched to its internal situation and predicated on leveraging its collection of competitively valuable resources and competencies. Successful Competitive Strategies Are Resource Based ( Low-Cost Providers -Must have the resources and capabilities to keep their costs below
those of their competitors. Differentiators -Must have the resources and capabilities to incorporate unique attributes that a broad range of buyers will find appealing and are will paying for. Narrow Segment Focusers -Must have the capability to do an outstanding job of satisfying the needs and expectations of niche buyers. Best-Cost Providers -Must have the resources and capabilities to incorporate upscale product or service attributes at a lower cost than rivals. Evaluating a Firm's Internal Situation Question 1 Question 1: How Well Is the Company's Strategy Working? The two best indicators of how well a firm's strategy is working are: Other Strategy Performance Indicators Indicators: Trends in the firm's sales and earnings growth Question 2: What Are the Company's Competitively Important Resources and Capabilities? A company's strategy and business model: -Must be well matched to its collection of resources and capabilities CORE CONCEPTS: Resource and Capability A resource is a competitive asset that is owned or controlled by a firm; a capability is the capacity of a firm to competently perform some internal activity. Capabilities are developed and enabled through the deployment of a firm's resources. Resource and Capability Analysis Analyzing the resources and capabilities of a company is a two-step process. 1. Identify the company's most competitively important resources and capabilities. 2. Apply the four tests of competitive power to ascertain which resources and capabilities can support a sustainable competitive advantage over rival firms. Determining the Competitive Power of a Company's Resources and Capabilities VRIN Competitive Power Tests Is the resource or capability competitively valuable? CORE CONCEPTS: VRIN tests for sustainable competitive advantage The VRIN tests for sustainable competitive advantage asks if a resource or capability is valuable, rare, inimitable, and nonsubstitutable. CORE CONCEPTS: Social Complexity and Causal Ambiguity Social complexity and causal ambiguity are two factors that inhibit the ability of rivals to imitate a firm's most valuable resources and capabilities. Causal ambiguity makes it very hard to figure out how a complex resource contributes to competitive advantage and therefore exactly what to imitate. CORE CONCEPT: Resource Bundles Companies that lack a standalone resource that is competitively powerful may nonetheless develop a competitive advantage through resource bundles that enable the superior performance of important cross-functional capabilities. The Importance of Dynamic Capabilities in Sustaining Competitive Advantage Management's organization-building challenge has two elements. 1. Attending to ongoing strengthening and recalibration of existing capabilities and resources 2. Casting a watchful eye for opportunities to develop totally new capabilities for delivering better customer value and/or outcompeting rivals CORE CONCEPT: Dynamic Capability A dynamic capability is the ability to modify, deepen, or reconfigure the company's existing resources and capabilities in response to its changing environment or market opportunities. Is the Company Able to Seize Market Opportunities and Nullify External Threats? SWOT represents the first letter in:
A well-conceived strategy is: CORE CONCEPT: SWOT Analysis SWOT analysis is a simple but powerful tool for sizing up a firm's internal strengths and competitive deficiencies, its market opportunities, and the external threats to its future well-being. The Value of a SWOT Analysis The value of a SWOT analysis is in: Drawing conclusions from SWOT listings about the firm's overall situation and translating those conclusions into effective strategic actions that: -Better match the firm's strategy to its strengths and market opportunities Question 3: Are the Company's Cost Structure and Customer Value Proposition Competitive? Why are both cost structure and value important? Useful analytical tools: CORE CONCEPT: Value Chain A company's value chain identifies the primary activities that create customer value and related support activities. Benchmarking: A Tool for Assessing Whether a Company's Value Chain Activities Are Competitive Benchmarking entails comparing how different firms perform various value chain maintenance and then making cross-firm comparisons of the costs and effectiveness of these activities. -How materials are purchased Core Concept: Benchmarking Benchmarking is a potent tool for learning which companies are best at performing particular activities and then using their techniques (or "best practices") to improve the cost and effectiveness of a company's own internal activities. The Value Chain System for an Entire Industry The value chains of forward channel partners are relevant because: -Costs and margins of the activities of distributors and retail dealers are part of the price the consumer pays and can strongly affect a firm's customer value proposition. -Accurately assessing the competitiveness of a firm's cost structure and value proposition helps its managers understand both an industry's value chain system and its internal value chain. Strategic Options for Remedying a Cost or Value Disadvantage There are three main areas of a firm's overall value chain where cost differences with rivals can occur. 1. A firm's own
internal activities Improving Internally Performed Value Chain Activities Implement the use of best practices throughout the firm. Improving Supplier-Related Value Chain Activities Remedying Supplier-Related Cost -Disadvantages Enhancing the Customer Value Proposition -Select and retain best-quality performing suppliers. Improving Value Chain Activities of Forward Channel Allies Combat forward channel cost disadvantages by: -Pressuring dealer-distributors and other forward channel allies to reduce their costs and markups Improve the customer value proposition by: -Engaging in cooperative advertising and promotions How Value Chain Activities Relate to Resources and Capabilities A company's value-creating activities are enabled by firm-specific resources and capabilities that are: -Valuable, rare and necessary preconditions for competitive advantage Question 4: What Is the Company's Competitive Strength Relative to Key Rivals? Determining a company's overall competitive position requires answering two questions. 1. How does the company rank relative to competitors on each of the important factors that determine market success? 2. Does the company have a net competitive advantage or disadvantage versus its major competitors? Steps in a Competitive Strength Assessment Step 1 Step 2 Step 3 Step 4 Step 5 Interpreting the Competitive Strength Assessments Show how a firm compares against its rivals, factor by factor or capability by capability. Indicate whether a firm is at net competitive advantage or disadvantage against each rival. Provide guidelines for designing wise offensive and defensive strategies. Point to competitive weaknesses of the firm that will require defensive moves to correct. Question 5: What Strategic Issues and Problems Must Be Addressed by Management? The final and most important analytical step is to focus management on crucial strategic issues. Precise pinpointing of problems sets the agenda for actions to take next to improve the firm's performance and business outlook. Compiling a "worry list" of problems and issues creates an agenda for managerial strategy making. Choosing Strategy Actions That Complement a Firm's Competitive Approach Decisions regarding the firm's operating scope and how to best strengthen its market standing must be made. -Should the firm go
on the offensive and initiate aggressive strategic moves to improve the firm's market position? If so, when? -When should the firm undertake strategic moves based upon whether it is advantageous to be a first mover or a fast follower or a late mover? Decisions regarding the firm's operating scope and how to best strengthen its market standing must be made. -Should the firm
integrate backward or forward into more stages of the industry value chain? Launching Strategic Offensives to Improve a Company's Market Position Aggressive offensives are called for when a firm: The best offensives use a firm's resource strengths to attack its rivals' weaknesses. Principal Offensive Strategy Options -Offer an equally good or better product at lower price. Use hit-and-run or guerilla warfare tactics to grab sales and market share from complacent or distracted rivals. Launch a preemptive strike to capture a rare opportunity or secure an industry's limited resources. Choosing Which Rivals to Attack Best Targets for Offensive Attacks -Market leaders that are vulnerable. Blue Ocean Strategy—A Special Kind of Offensive A firm seeks a large and lasting competitive advantage by abandoning existing markets and inventing an exclusive new industry or market segment (open competitive space) that makes former competitors irrelevant. By "reinventing the circus," Cirque du Soleil annually attracts an audience of millions of people who typically do not attend circus events. CORE CONCEPT: Blue Ocean Strategies Blue ocean strategies offer growth in revenues and profits by discovering or inventing new industry segments that create altogether new demand. Using Defensive Strategies to Protect a Company's Market Position and Competitive Advantage Defensive strategies defend against competitive challenges by: -Lowering the risk of being attacked. Good defensive strategies help protect competitive advantage but rarely are the basis for creating it. Blocking the Avenues Open to Challengers Blocking by: -Introducing new features Signaling Challengers That Retaliation Is Likely Publicly announce management's strong commitment to maintain the firm's present market share. Publicly commit firm to policy of matching rivals' terms or prices. Maintain a war chest of cash reserves. Make occasional strong counter-response to moves of weaker rivals. Timing a Company's Offensive and Defensive Strategic Moves When to make a strategic move is often as crucial as what move to make. A first-mover can earn an advantage when: CORE CONCEPT: First-Mover Strategies Because of first-mover advantages and disadvantages, competitive advantage can spring from when a move is made as well as from what move is made. The Potential for Late-Mover Advantages or First-Mover Disadvantages Late-mover advantages (or first-mover disadvantages) arise when: -Pioneering leadership is more costly than imitation. Deciding Whether to Be an Early Mover or Late Mover Key Issue: Is the race to market leadership a marathon or a sprint? Deciding to seek first-mover competitive advantage requires asking: -Does market takeoff depend on developing complementary products or services not currently available? Strengthening a Company's Market Position Via Its Scope of Operations Scope of a Firm's Operations Describes the breadth and strength of its activities and the extent of its reach into geographic, product and service market segments. Dimensions of a Firm's Scope -Breadth of its product and service offerings CORE CONCEPT: Scope of the Firm The scope of the firm refers to the range of activities the firm performs internally, the breadth of its product and service offerings, the extent of its geographic market presence, and its mix of businesses. CORE CONCEPTS: Horizontal and Vertical Scope Horizontal scope is the range of product and service segments that a firm serves within its focal market. Vertical scope is the extent to which a firm's internal activities encompass one, some, many, or all of the activities that make up an industry's entire value chain system, ranging from raw-material production to final sales and service activities. Horizontal Merger and Acquisition Strategies Strategic options that can strengthen a firm's market position by: Merger The combining of two or more firms into a single entity, with the newly created firm often taking on a new name Acquisition The combination in which one firm, the acquirer, purchases and absorbs the operations of another, the acquired firm Strategic Objectives of Mergers and Acquisitions -Extend the firm's business into new product categories. Why Mergers and Acquisitions Sometimes Fail to Produce Anticipated Results -Cost savings are smaller than expected. Vertical Integration Strategies Vertical integration involves extending a firm's competitive and operating scope within the same industry. -Backward into sources of supply Vertical integration can aim at either full or partial integration. CORE CONCEPT: Vertical Integration A vertically integrated firm is one that performs value chain activities along more than one stage of an industry's overall value chain. A vertical integration strategy has appeal only if it significantly strengthens a firm's competitive position and/or boosts its profitability. The Advantages of a Vertical Integration Strategy There are two best reasons for vertically integrating into more value chain segments. 1. Strengthening the firm's competitive position CORE CONCEPTS: Backward and Forward Integration Backward integration involves performing industry value chain activities previously performed by suppliers or other enterprises engaged in earlier stages of the industry value chain Forward integration involves performing industry value chain activities closer to the end user. Integrating Backward to Achieve Greater Competitiveness For backward integration to boost profitability a firm must be able to: 1. Achieve the same scale economies as outside suppliers. When Backward Vertical Integration Becomes a Consideration Potential situations that create opportunities for cost reduction through backward vertical integration: -When suppliers have large profit
margins Integrating Forward to Enhance Competitiveness -Gain better access to end users. Forward Vertical Integration and Internet Retailing Direct selling and Internet retailing is appealing when: Disadvantages of a Vertical Integration Strategy Increases a firm's capital investments in its industry. Slows adoption of new ways as vertically integrated firms persist in using aging technologies and facilities. Results in less flexibility in accommodating shifting buyer preferences when a new product design does not include parts and components that the firm makes in-house. Creates capacity-matching problems among integrated in-house component manufacturing units. Requires development of new and different skills and business capabilities. CORE CONCEPT: Outsourcing Outsourcing involves contracting out certain value chain activities to outside specialists and strategic allies. A firm should guard against outsourcing activities that hollow out the resources and capabilities that it needs to be a master of its own destiny Outsourcing Strategies: Narrowing the Scope of Operations Outsourcing an activity should be considered when: -It can be performed better or more cheaply by outside specialists. The Big Risk of an Outsourcing Strategy -Farming out the wrong types of activities and, thereby, hollowing out strategically important capabilities that ultimately leads to reduction of the firm's strategic competitiveness and long-run success in the marketplace is a big risk. Strategic Alliances and Partnerships Strategic Alliance -Strategically relevant collaboration. Strategic alliance allows firms to complementarily bundle resources and competencies to increase their competitive effects and value. CORE CONCEPTS: Strategic Alliance and Joint Venture A strategic alliance is a formal agreement between two or more companies to work cooperatively toward some common objective. A joint venture is a type of strategic alliance that involves the establishment of an independent corporate entity that is jointly owned and controlled by the two partners. Reasons for Firms to Enter Into Strategic Alliances Reasons: Reasons for Firms to Continue In Strategic Alliances Alliances are likely to be long-lasting when: -They involve collaboration with partners
that do not compete directly. Experience indicates that: -Alliances may help in reducing a firm's competitive disadvantage but seldom result in a firm attaining a durable competitive edge over its rivals. Failed Strategic Alliances and Cooperative Partnerships Common
causes for the failure of 60 to 70% of alliances each year: The Strategic Dangers of Relying on Alliances for Essential Resources and Capabilities The Achilles' heel of alliances and cooperative partnerships is becoming dependent on other companies for essential expertise and capabilities. Ultimately, a firm must develop its own resources and capabilities to protect its competitiveness and capabilities to build and maintain its competitive advantage. What are two ways a company can translate its low cost advantage?What are the two ways a company can translate its low-cost advantage over rivals into attractive profit performance? Eliminating or curbing nonessential activities and doing a better job than its rivals in performing essential activities.
What does SWOT stand for?SWOT analysis (strengths, weaknesses, opportunities and threats analysis)
Which of the following analytical tools are particularly useful for determining whether a company's prices and costs are competitive quizlet?Which of the following analytical tools are particularly useful for determining whether a company's prices and costs are competitive? Value chain analysis and benchmarking.
What are the four value activities for a firm's success?The primary activities of the value chain include inbound logistics, operation outbound logistics, marketing and sales, and service. Secondary activities or the support activities include firm infrastructure, human resources management, and procurement.
|
