LO: The advantages and disadvantages of extending the company's scope of pertains via vertical integration. Basis for competitive advantage is lower overall costs than competitors. differentiation below the added price premium the differentiating Because price cuts are easy to imitate, they may not result in a long-term advantage (Wensley, 1981). following a similar differentiation approach, technological change is Stem from the stability of a country's monetary system, economic and regulatory policies, and the lack of property rights protections. Companies have a number of offensive strategy options for improving their market positions: using a cost-based advantage to attack competitors on the basis of price or value, leapfrogging competitors with next-generation technologies, pursuing continuous product innovation, adopting and improving the best ideas of others, using hit-and-run tactics to steal sales away from unsuspecting rivals, and launching preemptive strikes. Firms that charge relatively low prices and offer substantial differentiation are following a strategy (Figure 5.19 “Best-Cost Strategy”). on of perhaps several competitors with comparatively low costs. A low-cost provider strategy becomes increasingly appealing and competitively powerful when a. price competition among rival sellers is vigorous, the products of rival sellers are essentially identical and supplies are readily available from any of several eager sellers, and buyers incur low costs in switching their purchases from one seller to another. seller to another, successful differentiation allows a firm to. A firm that performs value chain activities along more than one stage of an industry's value chain system. LO: The three main strategic approaches for competing internationally. There are few ways to achieve product differentiation that have value to buyers C. Buyers incur low costs in switching their … Strategy Train: 4.2.3 Where generic strategies can be a risk? sometimes great mass of value-conscious buyers looking for a Differentiation strategies work best when buyers have diverse product preferences, when a few other rivals are pursuing a similar differentiation approach, and when technological change is fast-paced and competition centers on rapidly evolving product features. Once a company has settled on which of the five generic competitive strategies to employ, attention turns to how strategic choices regarding (1) competitive actions, (2) timing of those actions, and (3) scope of operations can complement its competitive approach and maximize the power of its overall strategy. A competitive strategy of striving to be the low-cost provider is particularly attractive when D. Buyers are large and have significant power to bargain down prices; buyers use the product in much the same ways; and buyers have low switching costs value to buyers. Focused Differentiation Strategy. Be it in the classroom or the boardroom, executives invariably ask me the same question: Are low-cost businesses a permanent, enduring threat? target segment or market niche van be defined by geographic performance or sustainable competitive advantage unless. intended competitive edge over rivals depends on having. E) a reputation for charging the lowest prices in the industry. the company has a competitively valuable collection of resource buyers incur low costs in switching their purchases from one seller differentiation strategies is. company's product/service? The costs of completing a business agreement or deal, over and above the price of the deal. BUSN 620 Interactive Assignment Chapter 5 - Subject Business - 00404387 In a low cost strategy, the true winner is the company with the actual lowest cost in the market place. C. buyers incur low costs in switching their purchases from one seller/brand to another. There can, thus, be 2 types of focus strategy; Focused Low-Cost Strategy. Essence of this strategy is to offer unique product attributes that a wide range of buyers find appealing and worth paying for. Ho… Question 1 0.5 out of 0.5 points A competitive strategy to be the low-cost provider in an industry works well when Selected Answer: industry newcomers use introductory low … They want it all! To add shareholder value, a move to diversify into a new business must pass three tests: Creating added value for shareholders via diversification requires building a multibusiness company in which the whole is greater than the sum of its parts - such 1 + 1 = 3 effects are known as this. Involves contracting out certain value chain activities that are normally performed in-house to outside vendors. A low-cost provider strategy becomes increasingly appealing and competitively powerful when: ►Price competition among rival sellers is vigorous ►The products of rival sellers are essentially identical and supplies are readily available from several eager suppliers ►It is hard to achieve product differentiation in ways that buyers value It is a think-local, act-local type of international strategy, facilitated by decision making decentralized to the local level. A focused strategy based on either low cost or differentiation become increasingly attractive when the target market niche is big enough to be profitable and offers good growth potential when it is costly or difficult for multi-segment competitors to meet the specialized needs of the target market niche and at the same time satisfy their mainstream customers' expectations, when there are one or more niches that present a good match for a focuser's resources and capabilities, and when few other rivals are attempting to specialize in the same target segment. a competitive strategy aimed at being the industry's low-cost Refers to the range of activities that the firm performs internally, the breadth of its product and service offerings, the extent of its geographic market presence, and its mix of businesses. LO: When and how business diversification can enhance shareholder value. Involves entry into activities previously performed by suppliers or other enterprises positioned along earlier stages of the industry value chain system; A formal agreement between two or more separate companies in which they agree to work cooperatively toward some common objective. buyer's overall costs of using the product, (b) raise product This competitive strategy exceeds the customer's expectations for both cost and features. Pros of being a low price provider. Appealing to buyers who are sophisticated and shop hard for the best, A competitive strategy to be the low-cost provider in an industry typically does not work well when:_____ a) emergent strategies are required to respond to changes in competitor power. a company achieves low-cost leadership when, it becomes the industry's lowest-cost provider rather than just being Amazon’s original focus was on selling books, and needless to say, they’ve adapted quite a bit. LO: The attributes of a best-cost provider strategy - a hybrid of low-cost provider and differentiation strategies. a company's competitive strategy is unlikely to result in good Step 2: Choose the competitive strategy (cost strategy vs. differentiation strategy) you think you should be following. A low-cost leader can translate its low-cost advantage over rivals into superior profit performance by Either using its low-cost edge to underprice competitors and attract price sensitive buyers in large enough numbers to increase total profits or else by refraining from price-cutting and using the low-cost advantage to earn a bigger profit margin on each unit sold, thereby boosting the firm’s total profits and … To meet your goals, you've joined a gym, started reading some health and wellness magazines and are on the hunt for the best vitamins and supplements to complement your new eating habits. For all types of competitive strategies, success in sustaining the * When pioneering is more costly than imitating and offers negligible experience or learning-curve benefits. demonstrates effective management use of a company's cost drivers? The amount by which the price offered exceeds the pre-acquisition market value of the target company. In employing a low-cost provider strategy and trying to achieve a low-cost advantage over rivals, a company must do better job than rivals of cost-effectively managing value chain activities and/or it must find innovative ways to eliminate cost-producing activities. than cover the added costs of achieving the differentiation. A corporate brand name that can be applied to a wide assortment of business types. The proximity for most people to a Wal-Mart is around 10 miles. A factor that can have a strong differentiating effect. As such, it is a type of general resource that can be leveraged in unrelated diversification. A competitive strategy to be the low-cost provider in an industry works well when: A. price competition among rival sellers is especially sluggish. Low-cost provider strategies work particularly well when price competition is strong and the products of rival sellers are virtually identical, when there are not many ways to differentiate, when buyers are price-sensitive or have the power to bargain down prices, when buyer switching costs are low, and when industry newcomers are likely to use a low introductory price to build market share. Some executives are not content to have their firms compete based on offering low prices or unique features. Low-Cost Provider Strategy: The low-cost provider strategy seeks to create prices that are so low that competitors cannot meet or exceed consumer savings for goods or services of the same quality.Low-cost providers can sometimes gain the lion's share of the market, resulting in large profits from loyal consumers who return time and again to make purchases. Stem from instability or weakness in national governments and hostility to foreign business. Step 3: Analyze the competition and determine the industry standard. Involves entry into value chain system activities closer to the end user. In a low cost strategy, the true winner is the company with the actual lowest cost in the market place. A competitive strategy to be the low-cost provider in an industry works well when A. price competition among rival sellers is especially vigorous. introductory low prices to attract buyers and build a customer base, Conserving on marketing costs by cutting back on advertising expenditures. Broad differentiation strategies seek to produce a competitive edge by incorporating attributes that set a company's product or service offering apart from rivals in ways that buyers consider valuable and worth paying for. For example, if two companies make essentially identical products that sell at the same price in the market place, the one with the lower costs has the advantage of a higher level of profit per sale. Unrelated have dissimilar value chains and resource requirements, with no competitively important cross-business commonalities at the value chain level. circumstances where. competitors are resorting to clever advertising to try to set their A low-cost provider strategy works best when e. price competition among rival sellers is vigorous, buyer bargaining power is strong, and it is hard to achieve product differentiation in ways that have value to buyers. LO: The major avenues for achieving a competitive advantage based on lower costs. Exists whenever one or more activities constituting the value chains of different businesses are sufficiently similar to present opportunities for cross-business sharing or transferring of the resources and capabilities that enable these activities. C)buyers incur high costs in … a company's broad differentiation strategy fails (in the sense of not Competing in international markets allows a company to (1) gain access to new customers, (2) achieve lower costs through greater economies of scale, learning and increased purchasing power, (3) gain access to low-cost inputs of production, (4) further exploit its core competencies, and (5) gain access to resources and capabilities located outside the company's domestic market. Related possess competitively valuable cross-business value chain and resource commonalities. provider tends to work best when, most buyers use the product in the same ways, industry newcomers use a company is able to either keep the costs of achieving enhance buyer satisfaction in intangible ways. good-to-very-good product or service at an economical price. profit margins per unit by selling enough additional units to increase and buyers incur low costs in switching their purchases from one what sets focused strategies apart from low-cost provider and broad They cite the experience of U.S. airlines, which, after the industry’s deregulation in the 1980s, succeeded in beating off cut-price providers such as People Express. whether it is relatively easy or inexpensive for rivals to copy the This strategy is difficult to execute in part because creating unique features and communicating to customers why these features are useful generally raises a firm’s costs of doing business. improving product design and production techniques and striving hard The focused low-cost strategy of entering into a niche market at a low cost with a unique type of product that has a special need among the customers in the niche market. It represents a think-global, act-global approach. Unrelated diversification strategies surrender the competitive advantage potential of strategic fit at the value chain level in return for the potential that can be realized from superior corporate parenting or the sharing and transfer of general resources and capabilities. LO: The five major strategic options for entering foreign markets. focused low-cost strategy is. Strategy making is more complex for five reasons: (1) Different countries have home-country advantages in different industries; (2) there are location-based advantages to performing different value chain activities in different parts of the world; (3) varying political and economic risks make the business climate of some countries more favorable than others; (4) companies face the risk of adverse shifts in exchange rates when operating in foreign countries; and (5) differences in buyer tastes and preferences present a conundrum concerning the trade-off between customizing and standardizing products and services. There are few ways to achieve product differentiation that have value to buyers C. Buyers incur low costs in switching their … (because additional buyers are won over by the differentiating These include maintaining a home-country production base and exporting goods to foreign markets, licensing foreign firms to produce and distribute the company's products abroad, employing a franchising strategy, establishing a foreign subsidiary via an acquisition or greenfield venture, and using strategic alliances or other collaborative partnerships. a broad differentiation strategy works best in situations where. significantly boosting profitability or results in a competitive A competitive strategy to be the low-cost provider in an industry works well when A. Successful differentiation allows a firm to (1) command a premium price for its product, (2) increase unit sales (if additional buyers are won over by the differentiating features), and/or (3) gain buyer loyalty to its brand (because some buyers are strongly attracted to the differentiating features and bond with the company and its products). LO: What distinguishes each of the five generic strategies and why some of these strategies work better in certain kinds of competitive conditions than in others. B)there are numerous ways to achieve product differentiation that have no value to buyers. Coupons are an easy, inexpensive way of marketing and they offer a highly measurable way of … a competitive strategy aimed at being the industry's low-cost provider tends to work best when most buyers use the product in the same ways, industry newcomers use introductory low prices to attract buyers and build a customer base, and buyers incur low costs in switching their purchases from one seller to another 7. which of the following is not one of the pitfalls of a low-cost total profits. Cost leadership strategy ... Wars like these are quite bloody and often end without winners. Product development and advertising can both be quite expensive. The rational for related diversification is to benefit from strategic fit: Diversify into businesses with commonalities across their respective value chains, and then capitalize on the strategic fit by sharing or transferring the resources and capabilities across matching value chain activities to gain competitive advantages. A blue-ocean type of offensive strategy seeks to gain a dramatic new competitive advantage by inventing a new industry or distinctive market segment that renders existing competitors largely irrelevant and allows a company to create and capture altogether new demand. A focused strategy delivers competitive advantage either by achieving lower costs than rivals in serving buyers constituting the target market niche or by developing a specialized ability to offer niche buyers an appealingly differentiated offering that meets their needs better than rival brands do. Why the Strategy Works . is a middle ground competitive approach aimed squarely at the The extent to which a firm's internal activities encompass the range of activities that make up an industry's entire value chain system, from raw-material production to final sales and service activities. activities more cost effectively than rivals and/or finding innovative The term cost drivers refers to a set of factors that have a strong Focused Low-Cost Strategy. frills-free can undermine its attractiveness to buyers despite being * When pioneering helps build a firm's reputation and creates strong brand loyalty. LO: The strategic benefits and risks of expanding a company's horizontal scope through mergers and acquisitions. There are five strategic options for entering foreign markets. is false? A factor that has strong influence on a company's costs. incorporating product attributes and user features that (a) lower a serving buyers in the target market niche at a lower cost and lower The range of product and service segments that a firm serves within its focal market. ways to bypass non-essential value chain activities. differentiation by. which of the following is not one of the ways that a company can advantage) whenever, buyers don't value the brand's uniqueness and/or whenever a company's cheaper prices. One in which a company varies its product offering and competitive approach from country to country in an effort to be responsive to differing buyer preferences and market conditions. competitive strategy? stand-out differentiating attributes. LO: The primary reasons companies choose to compete in international markets. a company achieves a best-cost provider status by. There are many price-conscious buyers. to another and the products of rival sellers are essentially identical shown in Figure 5.2? Deciding which of the five generic competitive strategies to employ - overall low cost, broad differentiation, focused low cost, focused differentiation, or best cost - is perhaps the most important strategic actions a company undertakes and sets the whole tone for pursuing a competitive advantage over rivals. at least some unique and valuable resources/capabilities that are • Low–cost leadership through providing lowest cost provider in the industry • More than a competition surviving is important • To have lower costs than rivals on the product of comparable quality The main intention of low cost strategy is to have either low cost pricing on the units or to have a consistent price on the units irrespective of market fluctuations Two major approaches: Approach 1 – … the potential for buyer needs and uses of the product to become even LO: The merits and risks of unrelated diversification strategies. command a premium price for its product and/or increase unit sales This is in contrast to economies of scale, which accrue from a larger-sized operation. lowest possible cost because a product offering that is too 4 INCORRECT A low-cost leader's basis for competitive advantage is A) using an everyday low pricing strategy to gain the biggest market share. concentrated attention on a narrow piece of the overall market--the The efficiency of the low cost provider’s cost structure allows pricing below the average competitor, which in the long run may put average competitors out of business. Amazon is quite the rival with Wal-Mart as they both offer low prices and a vast product selection. perceive the differentiating features as valuable or worth paying for). market niche) strategy when. Defensive strategies to protect a company's position usually take one of two forms: (1) actions to block challengers or (2) actions to signal the likelihood of strong retaliation. Best-Cost Provider Strategy: The best-cost provider strategy chooses a focused market and appeals with a low cost and a lower cost. the chief difference between a low-cost provider strategy and a One in which a company employs the same basic competitive approach in all countries where it operates, sells standardized products globally, strives to build global brands, and coordinates its actions worldwide with strong headquarters control. Step 4: Study market dynamics and search for market gaps. This is why the alternative to low cost needs to be differentiation, offering unique prion, offering unique … which one fo the following is not a cost-saving approach that utilize to successfully achieve differentiation? An example of low-cost strategy would be Vizio, a company that designs flat panel LCD and Plasma TVs. more appealing than a differentiation or best-cost or focused (or which one of the following statements about cost drivers is true? develop offsetting close substitute resources/capabilities. The Competitive Advantage of a Low Cost Provider Strategy In employing a low-cost provider strategy, a company must do a better job than rivals of cost-effectively managing internal activities, or it must find innovative ways to eliminate or bypass cost-producing activities. attractive profit performance is by. upscale attributes at a lower cost than those rivals with comparable uniqueness, by specialized requirements in using the product, or by using its resources and capabilities to incorporate attractive Successful low-cost leaders, who have the lowest industry costs, are exceptionally good at finding ways to drive costs out of their businesses and still provide a product or service that buyers find acceptable. the company's brand. Price competition among rival sellers is especially vigorous B. the size of the buyer group that a company is trying to appeal to. the risks of a focused strategy do not include which of the following? Cost reductions that flow from operating in multiple businesses (a larger scope of operation). An effective use of cost drivers is key. There can, thus, be 2 types of focus strategy; Focused Low-Cost Strategy. most buyers use the product in the same ways, the products of rival Otherwise known as control premium. c) price competition among rival sellers is especially vigorous. fast-paced, and competition revolves around rapidly evolving product features. lower overall costs than rivals--but not necessarily the absolutely Step 5: Choose your most appropriate competitive strategy and look for potential practical solutions upscale product offerings. A competitive strategy to be the low-cost provider in an industry typically does not work well when:_____ a) emergent strategies are required to respond to changes in competitor power. low-cost provider strategies, focused low-cost strategies, best-cost circumstances where. broad differentiation strategies are well-suited for market which one of the following does not qualify as a "uniqueness Low-cost provider strategies work particularly well when price competition is strong and the products of rival sellers are very weakly differentiated. in which one of the following market circumstances is a broad Most consumers enjoy feeling like they are getting a steal of a deal on an upscale product with posh features. Patient-centeredness—the idea that care should be designed around patients’ needs, preferences, circumstances, and well-being—is a central tenet of health care delivery. 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