BADM 449 Exam 2 – Study Guide, Key Concepts & Practice Questions Review
Chapter 6: Business Strategy (Differentiation, Cost Leadership, Blue Oceans) - correct answer
✔✔
Business Level Strategy - correct answer ✔✔Goal direct actions managers take in their quest for
competitive advantage when competing in a single product market
* HOW should we COMPETE?
(who, what, why, how)
Strategy Diamond (5) - correct answer ✔✔1. Arena's: Where will we be active (and with how
much emphasis)
2. Vehicles: How will we get there?
3. Staging: What will be our speed and sequence of moves?
4. Differentiators: How will be WIN?
5. Economic Logic: How will RETURNS be obtained?
Basic Principles of Strategy 1: Value Based Strategy - correct answer ✔✔
Generic Business Strategies - correct answer ✔✔BROAD Competitive Scope (market size)
,1. Differentiation: create HIGH value for customers than competition by delivering products with
UNIQUE features, while keeping costs the same, and charging HIGHER PRICES
2. Cost Leadership : create same or similar value for customers by delivering products at lower
cost than competition, thus charging LOWER PRICES to customers
Focused Strategies:
NARROW Competitive Scope (serve a particular market segment)
3. Focused Differentiation
4. Focused Cost Leadership
Generic because they can be used by any organization, independent of industry!
Differentiation Strategy and it's Value Drivers
Goal of Differentiation?
3 Value Drivers - correct answer ✔✔* Differentiation seeks to add unique features to increase
perceived VALUE of products so that competitors cannot easily match and consumers want to
pay more
--> Create consumer PREFERENCES for firm's products
Value Drivers (increase perceived value)
1. PRODUCT ATTRIBUTES: exploiting the actual product
- Product features (turn commodity into differentiated product)
- Product complexity: multiple functions on a watch
- Timing of introduction to market (being first)
- Location
,2. CUSTOMER RELATIONSHIPS/ SERVICE: focus on customer service to increase value
- Customization: creating a unique braclet for customer
- Consumer Marketing: creating brand loyalty to a soap through advertising
- Reputation: good customer service, give to community
3. COMPLEMENTS: Use complements to add value when product and complement are
consumed together (DVR)
* FIRM LINKAGES
- Links among functions in firm: reuse a circuit board designed in one division in other divisions
- Linkages with OTHER firms: sporting goods store sponsors race and in turn receives free
advertising
- Product Mix: furniture store begins to sell home gym equip, computes, lawn mowers
Cost Leadership
3 Cost Drivers? - correct answer ✔✔Goal: reduce the firm's cost below competitors while
offering adequate value (focuses on decreasing costs in production)
Cost Drivers:
1. COST OF INPUT FACTORS: access to lower cost input factors (raw materials, capital, labor, IT
services)
2. ECONOMIES of SCALE: average total cost/unit decreases as you produce MORE output
(spread out fixed cost, employ specialized equipment, take advantage of physical properties)
, 3. LEARNING CURVE: The more we learn, the more efficiently we produce something and it
takes less and less time to produce same output (STEEPER curve -- more learning)
- increased individual skills
- improved organizational routines
Differentiation
Benefits
Risks - correct answer ✔✔Benefits:
Threat of Entry:
Benefit - Protection against entry due to INTANGIBLE resources such as a reputation for
innovation, quality, or customer service
Risks -- Erosion of margins// replacement
Power of Suppliers:
Benefit - Protection against increase in INPUT prices, which can be passed on to customers
Power of Buyers:
Benefit - Protection against DECREASE in SALES
Threat of Substitutes:
Benefit: Protection against substitute products due to DIFFERENT appeal
Risk - Replacement (especially in innovation)
Rivalry Among Existing Competitors:
Chapter 6: Business Strategy (Differentiation, Cost Leadership, Blue Oceans) - correct answer
✔✔
Business Level Strategy - correct answer ✔✔Goal direct actions managers take in their quest for
competitive advantage when competing in a single product market
* HOW should we COMPETE?
(who, what, why, how)
Strategy Diamond (5) - correct answer ✔✔1. Arena's: Where will we be active (and with how
much emphasis)
2. Vehicles: How will we get there?
3. Staging: What will be our speed and sequence of moves?
4. Differentiators: How will be WIN?
5. Economic Logic: How will RETURNS be obtained?
Basic Principles of Strategy 1: Value Based Strategy - correct answer ✔✔
Generic Business Strategies - correct answer ✔✔BROAD Competitive Scope (market size)
,1. Differentiation: create HIGH value for customers than competition by delivering products with
UNIQUE features, while keeping costs the same, and charging HIGHER PRICES
2. Cost Leadership : create same or similar value for customers by delivering products at lower
cost than competition, thus charging LOWER PRICES to customers
Focused Strategies:
NARROW Competitive Scope (serve a particular market segment)
3. Focused Differentiation
4. Focused Cost Leadership
Generic because they can be used by any organization, independent of industry!
Differentiation Strategy and it's Value Drivers
Goal of Differentiation?
3 Value Drivers - correct answer ✔✔* Differentiation seeks to add unique features to increase
perceived VALUE of products so that competitors cannot easily match and consumers want to
pay more
--> Create consumer PREFERENCES for firm's products
Value Drivers (increase perceived value)
1. PRODUCT ATTRIBUTES: exploiting the actual product
- Product features (turn commodity into differentiated product)
- Product complexity: multiple functions on a watch
- Timing of introduction to market (being first)
- Location
,2. CUSTOMER RELATIONSHIPS/ SERVICE: focus on customer service to increase value
- Customization: creating a unique braclet for customer
- Consumer Marketing: creating brand loyalty to a soap through advertising
- Reputation: good customer service, give to community
3. COMPLEMENTS: Use complements to add value when product and complement are
consumed together (DVR)
* FIRM LINKAGES
- Links among functions in firm: reuse a circuit board designed in one division in other divisions
- Linkages with OTHER firms: sporting goods store sponsors race and in turn receives free
advertising
- Product Mix: furniture store begins to sell home gym equip, computes, lawn mowers
Cost Leadership
3 Cost Drivers? - correct answer ✔✔Goal: reduce the firm's cost below competitors while
offering adequate value (focuses on decreasing costs in production)
Cost Drivers:
1. COST OF INPUT FACTORS: access to lower cost input factors (raw materials, capital, labor, IT
services)
2. ECONOMIES of SCALE: average total cost/unit decreases as you produce MORE output
(spread out fixed cost, employ specialized equipment, take advantage of physical properties)
, 3. LEARNING CURVE: The more we learn, the more efficiently we produce something and it
takes less and less time to produce same output (STEEPER curve -- more learning)
- increased individual skills
- improved organizational routines
Differentiation
Benefits
Risks - correct answer ✔✔Benefits:
Threat of Entry:
Benefit - Protection against entry due to INTANGIBLE resources such as a reputation for
innovation, quality, or customer service
Risks -- Erosion of margins// replacement
Power of Suppliers:
Benefit - Protection against increase in INPUT prices, which can be passed on to customers
Power of Buyers:
Benefit - Protection against DECREASE in SALES
Threat of Substitutes:
Benefit: Protection against substitute products due to DIFFERENT appeal
Risk - Replacement (especially in innovation)
Rivalry Among Existing Competitors:
