Chapter 3

What is the definition of a Sustainable Competitive Advantage?

Financial performance that consistently outperforms the industry average.

According to Michael Porter, what is the consequence for firms that define themselves solely by operational effectiveness?

They are in tough competition where companies keep lowering prices or cutting profits to win customers.

What is operational effectiveness?

Performing the same tasks better than rivals. Usually achieved by investing heavily in technology

What are the two dangers of operational effectiveness?

Fast follower problem & Lack of Innovation

What is the primary danger of the 'Fast Follower' problem in technology?

Competitors enter the market quickly with comparable products at lower costs by learning from the pioneer.

When offerings are nearly identical and can be easily interchanged, they have become a _____.

Commodity

Which component of the value chain involves receiving and storing raw materials for production?

Inbound logistics

What is augmented reality (AR)?

Technology that overlays digital images or information onto the real world.
- Furniture apps showing a couch in your living room

what is strategic positioning?

Performing different tasks than rivals, or the same tasks in a different way (opposite of operational effectiveness)

What is an imitation-resistant value chain?

A way of doing business that competitors struggle to copy and that involves technology in a key enabling role

What are economies of scale?

When a company grows, its cost per product or customer goes down because fixed costs are spread over more units, allowing lower prices.

What are the five primary components of the value chain?

Inbound logistics, Operations, Outbound logistics, Marketing and sales, and Services.

Which secondary component of the value chain includes general management, planning, finance, and IS?

Infrastructure.

Which primary component of the value chain involves the creation and delivery of a product to the customer?

Operations.

Concept: Viral Marketing

Definition: Leveraging consumers to promote a product or service.

If a firm has fixed costs of $600,000 and 2,000 customers, what is the fixed cost per customer?

The fixed cost per customer is $300.

If a firm with $600,000 in fixed costs grows to 200,000 customers, how does this exemplify economies of scale?

The fixed cost per customer drops significantly (from $300 to $3), allowing for a much lower total cost per unit.

How does data act as a switching cost for a firm leveraging technology?

Firms use data to improve their value chain with accurate forecasting and personalized recommendations that rivals cannot match.

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Concept: Network Effects

Definition: When the value of a product or service increases as its number of users expands (also called Metcalfe's Law).

What is straddling (strategy)?

When a company tries to compete in multiple market positions at once but fails to match the efficiency or strength of focused competitors.

When does being a 'first mover' successfully pay off for a company?

When the lead time is used to create critical resources like brand, scale, network effects, and switching costs.

According to the VRIN framework, what four characteristics must critical resources have to sustain competitive advantage?

Valuable, rare, tough to imitate, and lack of substitutes.

Which primary value chain component focuses on providing support after the sale is complete?

Services.

What are distribution channels

The path through which products or services get to customers (tiktok, instacart, amazon)

What is the role of affiliates?

Third parties that promote a product or service, typically in exchange for a cut of any sales

What are Porter’s Five Forces?

A framework for analyzing industry competition: rivalry among competitors, threat of new entrants, bargaining power of buyers, bargaining power of suppliers, and threat of substitutes.

A company decides to produce goods in-house to reduce reliance on third parties. Which of Porter's Five Forces are they targeting?

Supplier Power.

Zara's ability to respond to trends in weeks while others take months is an example of an _____ value chain.

Imitation-resistant.

information asymmetry

A decision situation where one party has more or better information than its counterparty