SEVI 30103 EXAM 1 & 2 STUDY GUIDE
Business-level strategy - Answers - integrated and coordinated set of commitments and
actions the firm uses to gain a competitive advantage by exploiting core competencies
in specific product markets
The generic business level strategies - Answers - - Overall Cost Leadership
- Differentiation
- Focus
Overall Cost Leadership - Answers - - creating a low-cost position relative to
competitors
- managing the value chain to lower costs
*focus on producing goods/services with features that are acceptable to customers at
the lowest cost, relative to that of competitors
Overall Cost Leadership - Value creating actitivies - Answers - - construction of efficient
scale facilities utilizing automation
- vigorous pursuit of cost reductions from experience
- tight cost and overhead control, fewer levels of higher-up
- avoidance of marginal customer accounts, profitability at the customer
- cost minimization is value chain activities including R&D, service, sales, and
advertising
Differentiation - Answers - - products/services that are unique and valued
- emphasis on non-price attributes for which customers will pay a premium
- a level of cost parity relative to competitors
- integration of multiple points along the value chain
- differentiation along multiple dimensions at once
Differentiation can have many forms: - Answers - - prestige brand image
- quality
- technology
- innovation
- customer service
Differentiation - Value creating activities - Answers - - superior material handling to
minimize damage
- low defect rates to improve quality
- accurate, responsive order processing
- personal relationships with key customers and rapid response to customer service
- creative/innovative marketing programs
- training/incentives for superior customer service
Focus Strategy: - Answers - - narrow competitive scope within the industry
, - narrow product lines, buyer segments, or targeting geographics
- advantage through cost leadership or differentiation
Focusing on these segments exclusively for Focus Strategy - Answers - - demographics
- socioeconomic factors
- psychological factors
- geography
- consumption patterns
What drives Focused Strategy? - Answers - - large firms often overlook smaller (but
profitable) niches
- requires fewer resources vs. a broader market strategy
- firm might be able to more effectively serve a narrow target's needs vs. its larger,
industry-wide competitor
- focus allows a firm to direct resources to the value chain activities that best build
competitive advantage
Cost Focus Leadership - Answers - created a cost advantage in its target segment,
exploited differences in cost behavior
Differentiation Focus Leadership - Answers - differentiates itself from its target market,
exploiting the special needs of buyers
Cost Leadership Risks - Answers - - too much focus on one or few value chain activities
- strategy can be imitated
- lack of parity of differentiation
- reduced flexibility
- obsolescence of the basis of cost advantage
Differentiation Risks - Answers - - uniqueness is not valued by customers
- too much differentiation
Focus Risks - Answers - - become too focused on satisfying buyer needs
- too narrow segments
Combination Risks - Answers - - firms that fail to attain both overall low-cost and
differentiation strategies end up "stuck in the middle"
- firms can miscalculate sources of revenue and profit pools in the industry
Cost Leadership & Five Forces - Answers - - protects a firm against rivalry from
competitors
- protects the firm against powerful buyers
- provides more flexibility to cope with increased input costs from powerful supplier
- provides substantial entry barriers through economies of scale
- puts the firm in a favorable position with respect to substitutes
Business-level strategy - Answers - integrated and coordinated set of commitments and
actions the firm uses to gain a competitive advantage by exploiting core competencies
in specific product markets
The generic business level strategies - Answers - - Overall Cost Leadership
- Differentiation
- Focus
Overall Cost Leadership - Answers - - creating a low-cost position relative to
competitors
- managing the value chain to lower costs
*focus on producing goods/services with features that are acceptable to customers at
the lowest cost, relative to that of competitors
Overall Cost Leadership - Value creating actitivies - Answers - - construction of efficient
scale facilities utilizing automation
- vigorous pursuit of cost reductions from experience
- tight cost and overhead control, fewer levels of higher-up
- avoidance of marginal customer accounts, profitability at the customer
- cost minimization is value chain activities including R&D, service, sales, and
advertising
Differentiation - Answers - - products/services that are unique and valued
- emphasis on non-price attributes for which customers will pay a premium
- a level of cost parity relative to competitors
- integration of multiple points along the value chain
- differentiation along multiple dimensions at once
Differentiation can have many forms: - Answers - - prestige brand image
- quality
- technology
- innovation
- customer service
Differentiation - Value creating activities - Answers - - superior material handling to
minimize damage
- low defect rates to improve quality
- accurate, responsive order processing
- personal relationships with key customers and rapid response to customer service
- creative/innovative marketing programs
- training/incentives for superior customer service
Focus Strategy: - Answers - - narrow competitive scope within the industry
, - narrow product lines, buyer segments, or targeting geographics
- advantage through cost leadership or differentiation
Focusing on these segments exclusively for Focus Strategy - Answers - - demographics
- socioeconomic factors
- psychological factors
- geography
- consumption patterns
What drives Focused Strategy? - Answers - - large firms often overlook smaller (but
profitable) niches
- requires fewer resources vs. a broader market strategy
- firm might be able to more effectively serve a narrow target's needs vs. its larger,
industry-wide competitor
- focus allows a firm to direct resources to the value chain activities that best build
competitive advantage
Cost Focus Leadership - Answers - created a cost advantage in its target segment,
exploited differences in cost behavior
Differentiation Focus Leadership - Answers - differentiates itself from its target market,
exploiting the special needs of buyers
Cost Leadership Risks - Answers - - too much focus on one or few value chain activities
- strategy can be imitated
- lack of parity of differentiation
- reduced flexibility
- obsolescence of the basis of cost advantage
Differentiation Risks - Answers - - uniqueness is not valued by customers
- too much differentiation
Focus Risks - Answers - - become too focused on satisfying buyer needs
- too narrow segments
Combination Risks - Answers - - firms that fail to attain both overall low-cost and
differentiation strategies end up "stuck in the middle"
- firms can miscalculate sources of revenue and profit pools in the industry
Cost Leadership & Five Forces - Answers - - protects a firm against rivalry from
competitors
- protects the firm against powerful buyers
- provides more flexibility to cope with increased input costs from powerful supplier
- provides substantial entry barriers through economies of scale
- puts the firm in a favorable position with respect to substitutes
