Exam 2 Strategic Management - Dr. Zorn

What are the 2 dimensions of Generic Competitive Strategies?

-source of competitive advantage

-scope of operations

Source of competitive advantage

whether a company tries to gain an edge on rivals by keeping costs down or by offering something unique in the market

scope of operations

whether a company tries to target customers in general whether it seeks to attract just a segment of customers

What are the 4 generic strategies?

-cost leadership

-differentiation

-focused cost leadership

-focused differentiation

cost leadership

offers products or services with acceptable quality and features to a broad set of customers at a low price

Differentiation

attempts to connivence customers to pay a premium price for its goods or services by providing unique and desirable features

focused cost leadership

requires competing based on price to target a narrow market

focused differentiation

requires offering unique features that fulfill the demands of a narrow market

How do focus strategies differ from broad strategies?

focus strategies involve targeting a relatively narrow niche of potential customers, broad strategies is not as restricted

What are the advantages of being a cost leader?

-withstanding price competition

-discouraging new entrants

-attracting a large market share

What are the disadvantages of being a cost leader?

-need to maintain a high sales volume

-if perceptions of quality dip too low, sales suffer

-may lead to minimizing advertising, market research, and research and development

What are the advantages of differentiator?

-ability to obtain premium prices from customers

-strong margins

-buyer loyalty (least likely to be price sensitive and open to new entrants)

What are the disadvantages of being a differentiator?

-customers may not be willing to pay extra for the brand's unique features

-prefer a cheaper alternative

-able to find competitors imitating the preferred features

What are the advantages of being a focused differentiator?

-charging a premium

-expertise leads to customer service (attracts customers)

What are the disadvantages of being a focused differentiator?

-limited demand

-others may not enter the area of focus

-getting "outfocused"

Best-cost strategy

companies that change relatively low prices and off substantial differentiation

stuck in the middle

does not offer features that are unique enough to continue customers to buy its offerings and its prices are too high to effectively compete on based on price

What are some examples of competitive moves?

-convincing respected physicians to prescribe certain drugs

-aggressively pushing a company's products

first-mover advantage

When the initial move into a market allows a firm to establish a dominant position that other firms struggle to overcome

advantages of first-mover

-create the standard

-intellectual property

-tie up resources

-create switching costs

-learning benefits

-brand recognition

-customer loyalty

disadvantages of first-mover

-customer reluctance

-costs of being the power are substantial

-undeveloped supply and distribution channels

-imitated and improved upon

disruptive innovation

innovations so superior that they threaten to replace traditional approaches; massively new innovation

What are the two types of disruptive innovations?

-low-end disruptions

-new market disruption

Low-end distruption

the company uses a low-cost strategy to enter the bottom of an existing market and claim a segment

new market disruption

company creates and claims a new segment in existing market by catering to an underserved customer base

What is a blue ocean strategy?

involved creating a new, untapped market rather than competing with rivals in an existing market

How does a blue ocean strategy work?

it must

-eliminate factors that rivals take for granted and reduce costs

-reduce certain factors below industry standards and lower costs

-raise certain factors above industry standards and increase value

-create factors that rivals do not offer and increase value

foothold

a small position that a company intentionally establishes within a market in which it does not yet compete; taking a small position in a new market

Why does speed of response matter?

speed of response is important when under attack- a slow response might lead to being crushed by the competition

What is bricolage?

creates new markets by using whatever materials and resources happen to be available as the inputs in a creative process

-apply when combining ideas from existing businesses to create new

How can firms respond to disruptive innovations?

1. Ignore the disruption

2. Counterattack with different goods or service

3. Directly match the competitor's move

What is the AMC framework?

the 3 factors which determine the likelihood that a company will respond to a competitive move include:

-awareness

-motivation

-capability

What is multipoint competition?

a situation where a company faces the same rival in more than one market

mutual forbearance

a situation where rivals do not act aggressively because each recognizes that the other can retaliate in multiple markets

What is a fighting brand?

a lower-end brand that a company introduces to protect the company's market share without damaging the company's existing brands

strategic alliance; what is meant by equity or non-equity alliance?

a cooperative arrangement between two or more organizations that do not involve the creation of a new entity

-can be equity (ownership) or non-equity (contract)

-can be vertical or horizontal

Vertical Alliance

a firm might team up with its supplier or distributor to reduce risk or get lower prices

Horizontal Alliance

companies that were competitors previously now join hands to enhance their competitiveness against others in the market

joint venture

a cooperative arrangement that involves two or more organizations each contributing to the creation of a new enitity

Colocation

occurs when goods and services offered under different brands locate very close to each other

co-operation

blending of competition and cooperation between two companies

What is game theory and why does it apply to us?

an economic theory that addresses trust and it shows us trust in business relationships

What did we learn in class about trust from game theory?

-you never know what your partner is thinking

-trust matters

-contracts exist because trust needs help (trust is necessary)

-relationships matter

-length of relationship matters

Why do firms go international?

-access to new customers

-lowering costs- access to cheaper raw materials and labor

-diversification of business risk- risk of operation failing

Outsourcing

Contracting with another company, usually abroad, to have it perform an activity the organization previously performed itself

offshoring

Moving operations from the country where a company is headquartered to a country where pay rates are lower but the necessary skills are available.

Reshoring

moves jobs back from foreign to domestic locations

What are the three primary risks of entering international markets?

-political risk

-economic risk

-cultural risk

political risk

the potential for government upheaval or interference with business to harm an operation within a country

economic risk

the potential for a country's economic conditions and polices, property rights protections, and currency exchange rates to harm a company's operations within a country

cultural risk

the potential risk for a company's operations in a country to struggle due to differences in language, customs, norms, and customer preferences

What are the elements of the diamond model? (Why do we care?)

-related and supporting industries

-factor conditions

-demand conditions

-company strategy, structure, and rivalry

(these determine if a company will be successful going internationally)

related and supporting industries

The extent to which firms' domestic suppliers and other complementary industries are developed and helpful

Factor Conditions

The nature of raw material and other inputs that firms need to create goods and services (can be created or natural)

Demand Conditions

The nature of domestic customers, especially whether they have high expectations of the goods and services that they buy

Company strategy, structure, and rivalry

how challenging it is for companies to survive domestic competition

What are the three primary international strategies?

-global strategy

-transactional strategy

-multidomestic strategy

Global Strategy

the firms views the world as a single marketplace, and its primary goal is create standardized goods and services that will address the needs of customers worldwide

Transactional Strategy

the firm attempts to combine the benefits of global scale efficiencies with the benefits of local responsiveness

multidomestic strategy

The firm establishes a collection of relatively independent operating subsidiaries, each of which focuses on a specific domestic market

Exporting

involves creating goods within a company's home country and then shipping them to another country

franchising

used by many companies who compete in service industries to develop a worldwide presence

licensing

involves granting a foreign company the right to create a company's product with a foreign country in exchange for a fee

wholly owned subsidiary

a business operation in a foreign country that a company fully owns

greenfield venture

a company that creates the entire operation itself

Which of the international expansion strategies is riskiest?

foreign direct investment

Which of the international expansion strategies offers the least control?

exporting

What is a generic of strategy?

a general way of positioning

Which of the following is not one of the key dimensions of the generic business level strategies?

intangible resources

Which of the following is not an advantage of a cost leadership strategy?

need to maintain high sales volume

Which of the following is not a disadvantage of a differentiation strategy?

buyer loyalty

Companies that changes a relatively low price and offer substantial differentiation are a following a:

best cost strategy

Focus Strategies

True

first-mover

the firm to enter a marketplace

blue ocean strategy

targeting unmet market segment needs

Bricolage

creating new markets with readily available resources

multipoint competition is

facing the same rival in multiple markets

Fighting brands are lower-end brands that companies introduce to try to protect their market share without damaging existing brand image.

True

AMC framework stands for:

Awareness, motivation, capability

Which of the following is an example of a joint venture?

Abbott labs and Merck forming a new company ti research COVID-19 treatments

Place the McDonald's across the street from a university is an example of

colocation

Which of the following is not one of the reasons firms decide to compete internationally?

increase factor endowments

Political risk refers to the potential for government upheaval or interference with business to harm an operation within a country.

true

Economic risk refers to the potential for a company's operations in a country to struggle because of differences in language. customs, norms, and customer preferences.

False

The diamond model of national advantage includes all of these factors except:

price conditions

The multi domestic strategy focuses on _____________________ where as the global strategy focuses on __________________.

customization, efficiency