BU111 midterm

Cost leadership

compete by being the LOWEST cost producer in YOUR market

Cost focus

compete by being the CHEAPEST in a NICHE market

Differentiation:

competes by offering a UNIQUE product/service that's valued across a WHOLE market that people are willing to pay more for

differentiation focus

competes by offering a specialized, UNIQUE offering for a NARROW group

cost leadership - external

price sensitive customers, standardized products, intense price competition

cost leadership - internal

good supply chain and cost control, culture focused on productivity and efficiency, strong efficiency

cost focus - external

niche market exists that is price sensitive, few competitors serve this niche

cost focus - internal

ability to understand and target niche, cost-efficient operations

differentiation - external

customers are willing to pay more for uniqueness and quality, strong brand loyalty and perception

differentiation - internal

skilled workforce, innovation and research focused

differentiation focus - external

small but profitable niche that values uniqueness, quality or prestige; niche customers have unmet needs; less concern over money, more concern over experience

differentiation focus - internal

strong customer service/craftmanship, deep understanding of niche market, brand image resonates with niche 

P: political - elements

laws, regulations, international trade laws, trade agreements 

E: economic - elements

GDP, inflation, interest, employment/unemployment, exchange rates 

S: social - elements

values, attitudes, customs, habits, demographics 

T: technology - elements

information technology (IT), internet, materials and equipment 

P - impact

expansion, barriers, competition 

E - impact

cost, demand, funding, competitive pricing

S - impact

corporate social responsibility (CSR), employees, customers 

T - impact

barriers, innovation, strategy, research and development (R&D)

Rivalry: someone who sells something very similar to you - FACTORS

Factors: 

• Many customers of equal size 

• Low industry growth rate

• Low consumer switching costs 

• perishible/commodity 

• Exit barriers 

Rivalry - Effects

• Price competition 

• Lower volume 

• Increased costs 

Rivalry - solution

• Growth 

• Acquisition of competitors (eat company) 

• create/increase consumer switching costs 

• Differentiation 

rivalry - examples

High rivalry: banks, uber → low quantity 

Low rivalry: restaurants → high quantity 

Substitutes: products that do similar jobs - FACTORS

• Many good quality substitutes 

• Low switching osts 

• Improvements in price-performance trade-off

• High buyer propensity to substitute

substitutes - effects

• Creates a price ceiling 

• Increases marketing costs 

substitutes - solution

• Strong marketing/differentiation 

• Lock in customers 

New entrants: new/future competitors - FACTORS

Cost factors: 

• Economies of scale 

• Capital requirements 

• Other; learning curves, specialized assets 

Customer factors:

• Differentiation (creates high switching costs and brand loyalty)

• Government regulations 

• Distribution channels 

new entrants - effects

• Can cause big changes 

• Can intensity competition 

new entrants - solution

• Lock in customers 

• Differentiation (brand loyalty and identity)

• Grow to achieve economies of scale 

• Lobby the government 

• Control distribution channels 

Suppliers FACTORS

Factors: 

• Few suppliers 

• Few good substitute suppliers 

• Forward integration (expanding a company's activities to include the direct distribution of its products)

• Low importance 

• High switching costs 

suppliers - effects

• costs of inputs

suppliers - solution

• Internal supply (DIY)

• Strategic alliance with suppliers 

• Long run; redesign product, redesign inputs 

buyers - FACTORS

• Few/concentrated buyers 

• Standardized products; switching costs, complexity of products 

• Discretionary of purchase/importance of product 

• Purchase significance with respect to cost

• Backwards integration (businesses acquire or merge with raw materials inventory or parts suppliers in their supply chain)

buyers - effects

• Reduced price that you can demand → increases costs 

buyers - solution

• Form alliance with other sellers 

• Strong marketing/differentiation 

• Create switching costs/customer lock in

• Create information asymmetries 

Citation order

Name. (date). Title. Publisher. Site.

Net promoter score

measures customer loyalty by looking at their likelihood of recommending a given business - WANT HIGH

churn

the measure of how many customers stop using a product - WANT LOW