MGT488 Module 4

Differentiation and cost-leadership strategies are only effective in manufacturing industries.

 

True

 

False

False

A differentiator will always benefit when products have become commoditized.

 

True

 

False

False

A cost leader is the firm least likely to survive a price war.

 

True

 

False

False

Differentiation, focused differentiation, cost leadership, and focused cost leadership are

 

competitive advantages.

 

value innovations.

 

business strategies.

 

performance metrics.

business strategies

A firm’s business strategy can lead to a competitive advantage if it allows the firm to

 

execute the same activities performed by the rivals in a similar manner.

 

reduce the value gap.

 

perform different activities than its rivals.

 

position itself below the productivity frontier.

perform different activities than its rivals

Which of the following is primarily a value driver?

 

cost of input factors

 

economies of scope

 

experience-curve effects

 

product features

product features

Firms with greater market share might be in a position to reap economies of scale, which are

 

decreases in cost per unit as output increases.

 

increases in cost per unit as output decreases.

 

decreases in output in a generic cost-leadership strategy.

 

increases in price in a focused cost-leadership strategy.

decreases in cost per unit as output increases.

Which of the following sources of differential appeal is most effective in helping a firm sustain its advantage?

 

a cost-leadership strategy

 

an updated package design

 

superior customer experience

 

observable product features

superior customer experience

The primary goal of a firm pursuing a blue ocean strategy should be to

 

create the highest perceived value in its respective industry.

 

build a reputation of being the lowest-cost producer in its chosen industry.

 

offer a differentiated product or service at a low cost.

 

achieve a less steep learning curve.

offer a differentiated product or service at a low cost.

When a blue ocean strategy goes bad, a firm has neither a clear differentiation nor a clear cost-leadership profile. This situation is referred to as

 

stuck in the middle.

 

buried at the bottom.

 

burned at the top.

 

caught in the transition.

stuck in the middle.

Business-level strategy

details the goal-directed actions that managers take in their quest for competitive advantage when competing in a single product market

Strategic tradeoff

Choice between a cost position or a value position

Differentiation Strategy

Strategy seeks to create higher value for customers than the value that competitors create. Deliver products or services with unique features while keeping costs at the same or similar levels, allowing them to charge higher prices to their customers.

Cost Leadership Strategy

seeks to create the same or similar value for customers by delivering products or services at a lower cost than competitors, enabling the firm to offer lower prices to its customers.

scope of competition

The size—narrow or broad—of the market in which a firm chooses to compete.

Economies of scope

are the savings that come from producing two (or more) outputs at less cost than producing each output individually, despite using the same resources and technology.

Value Drivers

> Product Features
> Customer Services
> Complements

Cost Drivers

> Cost of input factors. ■ Economies of scale. ■ Learning-curve effects. ■ Experience-curve effects.

economies of scale

decreases in cost per unit as output increases
> Differences in timing and complexity also play a role in learning curves

blue ocean strategy

business-level strategy that combines differentiation and cost-leadership activities by using value innovation to reconcile the inherent trade-offs in those two distinct strategic position

Creates new value rather than competing in the existing market (ex. Netflix) → DIFFERENTIATION & COST-LEADERSHIP

Red Ocean Strategy

business-level strategy that trades-off differentiation OR cost-leadership, competing in existing markets with diminishing profit margins.