MGMT 3830 Exam 2 LSU

Porters Generic Strategies

-frameworks developed to achieve "competitive advantage"

- cost leadership

- differentiation

- focus

What is cost leadership strategy?

-firms become to lowest-cost producer in the industry

- by keeping production and operational costs below competitors

- offers products at lower prices to gain market share while maintaining profitability.

Ex: walmart, southwest, mcdonalds

Economies of Scale

factors that cause a producer's average cost per unit to fall as output rises

Learning Curve Effects

-Learning drives down costs

-It takes less time to produce the same output.

- We learn how to be more efficient.

-People learn from cumulative experience:

-Writing computer code

-Developing new medicines

-Building submarines

-First noted during WWII:

-When production doubled, per-unit cost dropped 20%.

Cost Control

A business's efforts to manage how much it spends.

Supply Chain Management

a management system that coordinates and integrates all of the activities performed by supply chain members into a seamless process, from the source to the point of consumption, resulting in enhanced customer and economic value

Case of Ikea

- flat pack

- ready to assemble

- standardized products

- global sourcing

Common Misconceptions

- low cost equals low quality

- it's only about reducing price (whole business needs to align)

- easy to implement and sustainable

- absence of innovation

Cost Vs. Quality

Firms must choose between keeping costs low to stay affordable and investing more in quality to deliver superior performance. Pursuing one typically limits the other, forcing a strategic balance based on what the target customer values most.

Customer Service Vs. Effeciency

Companies must choose between delivering highly personalized, attentive customer service and streamlining operations for maximum efficiency. Enhancing one often reduces the other, forcing firms to balance warmth and human touch against speed, automation, and cost control.

Employee Morale Vs. Lower Wages

Firms must balance keeping wages low to reduce labor costs with paying employees more to sustain morale, motivation, and retention.

Cost Vs. Innovation

Companies must choose between minimizing costs to protect short‑term margins and investing heavily in innovation to drive future growth and differentiation.

Risks of Cost Leadership Strategy

- over-aggressive cost-cutting

- high imitability

- complete neglect of differentiation

- "stuck in the middle" danger (lack of clarity and consistency)

- Process obsolescence

Ways to sustain cost leadership

- continuous cost-analysis

- process innovation

- economies of scale

- product standardization

When Cost Leadership Fails

- Customers value uniqueness over price

- rapid product innovation industries

- luxury / premium markets

Differentiation Strategy

- Offer products/services perceived as unique

- customers willing to pay a premium price

- Competitive advantage comes from uniqueness

- reduced price sensitivity

social desirability

the tendency of participants to try to give answers that reflect well upon them

Prestige

High standing; respect earned by accomplishments

Sources Of Differentiation

- customization

- service quality

- brand reputation

- technology

- marketing strength

Effects Of Differentiation

- Reduces Buyer Power

- Reduces Rivalry

- Weakens Substitutes

- Allows profits maximization

Risks of Differentiation

- Imitation

- Overpricing

- Customers may not value uniqueness

- economic downturn reduces demand

Focus Strategy

- Target a niche market

- Serves that market better than others

- two types: cost focus and differentiation focus

Cost Focus Strategy

- lowest cost within a niche

- serve price-sensitive segment

- limited services

- Ex: dollar tree

Difference with cost leadership

target market (broad vs narrow)

Differentiation Focus Strategy

- Unique offering within a niche market

- premium pricing within that

- strong positioning

- Example: Ferrari

Why focus strategy works

- specialized customer needs

- Large firms ignore small niches

- strong customer loyalty

- Deep segment expertise

Risks of focus strategy

- niche becomes too small

- large firms enter niche

What is external analysis?

- strategic process of identifying threats and opportunities

- External environment

- Industry Evaluation

Implications for strategic leaders

- Define relevant industry

- identify key players

- determine key drivers

- assess overall industry structure

The PESTEL Framework

- EXTERNAL ENVIRONMENT SCANNING TOOL

- Political, Economic, Socio-cultural, technological, environmental, and legal.

Political Factors

- Government policies/ideologies, tariffs, trade restrictions

- agreement between the US and EU

- ban on semiconductor supply chains with china

- support for green vs. non-green

- removal of dye from chips, use of beef tallow for frying.

Economic Factors

- Inflation, interest rates, GDP, GDI

- slowed consumer purchases

- high interest rates for the automobile and real estate industries.

Socio-Cultural Factors

- Demographic trends, lifestyle changes, cultural attitudes, fads, consumer behavior shifts.

- Remote work and real estate industry

Technological Factors

- Innovation, technological adoption, disruption

- Airbnb

- uber

- zoom

Environmental Factors

- Climate change

- green adoption/refusal

- carbon footprints

Legal Factors

- Laws; court decision

- minimum wage law

- data privacy law

- Anti-trust laws

Porters 5 Forces

- FRAMEWORK TO ASSESS COMPETITIVE INTENSITY AND PROFITABILITY

- competitive rivalry

- threat of new entrants

- bargaining power of suppliers

- bargaining power of buyers

- threat of substitutes

Competitive Rivalry

- intensity of competition

- higher rivalry > higher profits

- fast food industry

- aircraft manufacturing

Threat of New Entrants

- high > low profit

- social media platforms

- network effects

- capital expenditures

- brand dominance

Bargaining Power of Suppliers

The threat that suppliers may raise prices or reduce the quality of purchased goods and services

- low > high profit

- McDonalds vs Tesla

Bargaining Power of Buyers

- Can customers force price down?

- What about when firms are buyers?

- High buyer power > lower profit margins (When firms are not buyer)

- Higher buyer power > higher profit margin (when firms are buyers and suppliers are sellers)

Threat of Substitues

- High > Lower profit

- Streaming vs. Movie theatres

- Plant-based vs. traditional meat

Drawbacks of PESTEL Framework

- Static model

- Lacks dynamism

- Snapshot of the industry at a given time

Why are strategic groups important?

- Rivalry is strongest between firms within each strategic group

- Harder to switch groups