MGT460 :Chapter 5 : The Five Generic Competitive Strategies and Practice Questions
MGT460 :Chapter 5 : The Five Generic Competitive Strategies and Practice Questions MGT 460
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This 14 page Class Notes was uploaded by Winn on Wednesday February 24, 2016. The Class Notes belongs to MGT 460 at Marshall University taught by Dr. Uyi Lawani in Spring 2016. Since its upload, it has received 605 views.
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Date Created: 02/24/16
Chapter 5 : The Five Generic Competitive Strategies. 1) Why do the strategies differ ? _ Categorizing Decisions : a) Making routine choices and judgements. b) Influencing outcomes. c) Placing competitive bets. _ Discernment and Versatility 2) The Five Generic competitive strategies : a) Low-cost provider strategy : (Walmart , Sam’s , 99 cent stores , the attic , Dollar tree, Family Dollar ) _ Cost driver is factor that has a strong influence on a firm’s cost. _ Keeping costs low, yet offering basic features that low cost buyers consider essential. _Targeting : • Price sensitive markets…price conscious buyers • Segments with limited incomes • Price sensitive customers in greater numbers thereby, increasing profits (although thin profit margins) • Extreme price competitive markets • Products are essentially the same • Where brand differences are inconsequential to the consumer • When substitutes are readily available • Good strategy for new entrants b) Broad differentiation strategy : Differentiating the firm’s product offering from rivals’ with attributes that appeal to a broad spectrum of buyers Targeting : • Diverse needs and preferences among target markets • A broad range of buyers • Value conscious consumers • Products and services stand apart in consumers’ minds • Customers looking for a unique value proposition • Premium price products • Buyers loyal to the brand (value the unique differentiation) Example : Rolex , Microsoft , FedEx, BMW , Michelin , Gucci , Land’s end, nike , snack wells, briggs and Stratton, Harley-Davidson , Avis ,Versaci ,Starbucks ,Victoria Secret , HEB Plumbing. c) Market focused strategy : ( focused low-cost and focused differentiation) : cost and niche ( good way to discourage entry of industry leaders , another differentiation and positioning strategy ) Targeting : • Price conscious customers (similar to low cost provider strategy) • Well defined segments • Appealing to cultures and geographical preferences • Brand loyal customers • Appeal to broad market segments (low cost) • Wants and needs of narrow and unique market segment (niche) Example : Community office , Grand ole Opry , krispy Kreme doughnuts, red box , best buy , trader joe’s , tabasco , oberweis dairies , Haltom ‘s jewelries , dairy queen. d) Best cost provider strategy : balances low-cost against emphasis on differentiation and positioning. Targeting : • Low cost, differentiation markets (a hybrid) • Broad markets and market niches (middle ground) • Value conscious buyers • Those who shy away from cheap, low-end products and, expensive high-end products • Willing to pay a fair price for functionality and performance • More for the money Example : Lexus , Target , Savane , Marriott Courtyard , UPS ,Little Debbie , Black Eyed Pea, Ruby Tuesday , Budweiser , Goodyear , Bimbo Bakeries. Distinguishing Features of the Five Generic Competitive Strategies Part 2 : Practice Questions ( these questions I read and make answers from many sources : I hope it will help you guys in the exam ) 1) A factor that has a strong influence on a company's costs is termed a cost driver. 2) A focused strategy aimed at securing a competitive edge and which is based either on low cost or differentiation becomes more attractive when the target market niche is small enough to limit profitability and the outlook is ripe for differentiating. 3) Approaches to enhancing differentiation through changes in the value chain include -coordinating with channel allies to enhance customer perception of value. -coordinating with suppliers to better address customer needs. -working closely on those activities performed by upstream suppliers and downstream by distributors and retailers to enhance customer value proposition. -collaborating with suppliers to improve many dimensions affecting product features and quality 4) Focused strategies keyed either to low-cost or differentiation are especially appropriate for situations where the market is composed of distinctly different buyer groups who have different needs or use the product in different ways. 5) In which of the following circumstances is a strategy to be the industry's overall low-cost provider NOT particularly well-matched to the market situation? When buyers have widely varying needs and special requirements, and the prices of substitute products are relatively high. 6) The chief difference between a low-cost provider strategy and a focused low-cost strategy is the size of the buyer group that a company is trying to appeal to. 7) The keys to maintaining a broad differentiation strategy are to stress constant innovation to stay ahead of imitative rivals and to concentrate on a few differentiating features. 8) A strategy to be the industry's overall low-cost provider tends to be more appealing than a differentiation or best-cost or focus/market niche strategy when the offerings of rival firms are essentially identical, standardized, commodity-like products. 9) A low-cost leader's basis for competitive advantage is meaningfully lower overall costs than rivals on comparable products. 10) A competitive strategy to be the low-cost provider in an industry works well when industry newcomers use introductory low prices to attract buyers and build a customer base. 11) Successful differentiation allows a firm to command a premium price for its product, and/or increase unit sales, and/or gain buyer loyalty to its brand. 12) Success in achieving a low-cost edge over rivals comes from out-managing rivals in finding ways to perform value chain activities faster, more accurately, and more cost efficiently. 13) The objective of differentiation is to offer customers something rivals can't, at least in terms of the level of satisfaction. 14) A company's biggest vulnerability in employing a best-cost provider strategy is getting squeezed between the strategies of firms employing low-cost provider strategies and high-end differentiation strategies. 15) Easy-to-copy differentiating features cannot produce sustainable competitive advantage. 16) Whether a broad differentiation strategy ends up enhancing company profitability depends mainly on whether most buyers accept the customer value proposition as unique and the product can command a higher price or produce sufficiently bigger unit sales to cover the added costs of achieving the differentiation. 17) The production emphasis of a company pursuing a broad differentiation strategy usually involves emphasis on building differentiating features that buyers are willing to pay for and includes wide selection and many product variations. 18) Achieving a differentiation-based competitive advantage can involve _Incorporating product attributes and user features that lower a buyer's overall cost of using the product _ Incorporating features that raise the performance a buyer gets from using the product _ Incorporating features that enhance buyer satisfaction in non- economic or intangible ways _ Delivering value to customers via competencies and competitive capabilities that rivals don't have or can't afford to match 19) The underlying criteria of a best-cost provider strategy usually is found in the ability of a company to offer similar goods at more attractive prices. 20) The marketing emphasis of a company pursuing a broad differentiation strategy usually is to tout differentiating features and charge a premium price that more than covers the extra costs of differentiating features. 21) Brands create customer loyalty, which in turn increases the perceived cost of switching to another product. 22) A low-cost provider's product does NOT have to always suggest that a low price, by itself, is not always that appealing to buyers. 23) A broad differentiation strategy generally produces the best results in situations where few rival firms are following a similar differentiation approach. 24) Each of the five generic strategies positions the company differently, except when it concerns creating differentiation barriers within economies of scope. 25) Which of the following is NOT one of the ways that a company can achieve a cost advantage by revamping its value chain? Increasing production capacity and then striving hard to operate at full capacity 26) Pursuing continuous quality improvement as a uniqueness factor is sound because it can often reduce product defects, improve economy of use, and result in more end-user convenience. 27) An example of how companies can revamp their value chain to reduce costs is to increase service availability while reducing staffing requirements. 28) A low-cost leader translates its low-cost advantage over rivals into superior profit performance by either using its lower-cost edge to under-price competitors and attract price-sensitive buyers in great enough numbers to increase total profits or maintain the present price, and using the lower-cost edge to earn a higher profit margin on each unit sold, thereby raising total profits and overall return on investment. 29) While low-cost providers are champions of frugality, they seldom hesitate to spend aggressively on resources and capabilities that promise to drive costs out of the business. 30) Which of the following is NOT one of the ways managers can enhance differentiation based on uniqueness drivers? Seeking out low-quality inputs 31) In which one of the following market circumstances is a broad differentiation strategy generally NOT well-suited? When the products of rivals are weakly differentiated and most competitors are resorting to clever advertising to try to set their product offerings apart 32) The culture of a company can be a cost-efficient value chain activity because it can allow for safeguarding internalized operating benefits. 33) Best-cost provider strategies are appealing in those market situations where diverse buyer preferences make product differentiation the norm and where a large number of value-conscious buyers can be induced to purchase mid-range products. 34) A firm pursuing a best-cost provider strategy seeks to deliver superior value to buyers by satisfying their expectations on key quality/service/features/performance attributes and beating their expectations on price (given what rivals are charging for much the same attributes). 35) To succeed with a low-cost provider strategy, company managers have to do two things: (1) perform value chain activities more cost-effectively than rivals, and (2) act proactively in revamping the firm's overall value chain to eliminate or bypass "nonessential" cost-producing activities. 36) The chief difference between a broad differentiation strategy and a focused differentiation is the size of the buyer group that a company is trying to appeal to. 37) Focusing carries several risks, one of which is the chance that competitors will find effective ways to match the focused firm's capabilities in serving the target market. 38) A focused low-cost strategy can lead to attractive competitive advantage when a firm can lower costs significantly by limiting its customer base to a well-defined buyer segment. 39) Which of the following is NOT one of the five generic types of competitive strategy? A market share dominator strategy 40) A broad differentiation strategy works best in situations where technological change is fast-paced and competition revolves around rapidly evolving product features. 41) Being the overall low-cost provider in an industry has the attractive advantage of putting a firm in the best position to win the business of price- sensitive customers, set the floor on market price, and still earn a profit. 42) A pitfall to avoid in pursuing a differentiation strategy is trying to differentiate on the basis of attributes or features that are easily and quickly copied. 43) Opportunities to differentiate a company's product offering can exist in activities all along an industry's value chain. 44) Perceived value and signaling value are often an important part of a successful differentiation strategy because buyers seldom will pay for value they don't perceive, no matter how real the value of the differentiating extras may be. 45) The generic types of competitive strategies include low-cost provider, broad differentiation, best-cost provider, focused low-cost and focused differentiation strategies. 46) Success with a best-cost provider strategy designed to outcompete high-end differentiators requires achieving significantly lower costs in providing the upscale features 47) Uniqueness drivers are a set of factors (analogous to cost drivers) that are particularly effective in having a strong differentiation effect 48) The major avenues for achieving a cost advantage over rivals include performing value chain activities more cost-effectively than rivals or revamping the firm's overall value chain to eliminate or bypass some cost-producing activities. 49) The competitive objective of a best-cost provider strategy is to meet or exceed buyer expectations on key quality/performance/features/service attributes and beat their expectations on price (given what rivals are charging for much the same attributes). 50) To profitably employ a best-cost provider strategy, a company must have the resources and capabilities to incorporate attractive or upscale attributes into its product offering at a lower cost than rivals. 51) Which of the following is NOT one of the four basic routes to achieving a differentiation- based competitive advantage? Appealing to buyers who are sophisticated and shop hard for the best, stand-out differentiating attributes 52) The most appealing approaches to differentiation are Those that are hard or expensive for rivals to duplicate and that also have considerable buyer appeal 53)Using a broad differentiation strategy to produce an attractive competitive advantage is LEAST LIKELY to be based on Undercutting the prices being charged by rivals 54)A broad differentiation strategy improves profitability when Unit sales increase and the extra price the product commands exceeds the added costs of achieving the differentiation 55)A company attempting to be successful with a broad differentiation strategy has to Study buyer needs and behavior carefully to learn what buyers consider important, what they think has value and what they are willing to pay for 56) The essence of a broad differentiation strategy is to Be unique in ways that are valuable and appealing to a wide range of buyers 57) In which of the following circumstances is a low-cost leadership strategy NOT likely to be particularly successful? When the industry is composed of more than three strategic groups and the companies in at least one of the groups are pursuing full vertical integration strategies 58) A competitive strategy predicated on low-cost leadership tends to work best when . Price competition is especially vigorous and the offerings of rival firms are essentially identical, standardized, commodity-like products 59) company achieves best-cost provider status by . Incorporating attractive or upscale attributes into its product offering at a lower cost than rivals 60) Which one of the following statements about pursuing a broad differentiation strategy is false? The best opportunities for achieving strong product differentiation are in the production technology and marketing portions of the value chain 61) Which of the following is NOT one of the pitfalls of pursuing a differentiation strategy? Trying to STRONGLY differentiate the company's product from those of rivals rather than be content with WEAK product differentiation 62) For a best-cost provider strategy to be successful, a company must have Resource strengths and competitive capabilities that allow it to incorporate upscale attributes at lower costs than rivals whose products have similar upscale attributes 63) The target market of a best-cost provider is Value-conscious buyers 64) One of the big dangers in crafting a competitive strategy is that managers, torn between the pros and cons of the various generic strategies, will opt for . A "stuck-in-the-middle" strategy 65) The marketing emphasis of a company pursuing a focused low-cost provider strategy usually is to . Communicate the attractive features of a budget-priced product offering that fits niche members' expectations 66) The keys to sustaining a broad differentiation strategy are . To stress constant innovation to stay ahead of imitative rivals and to concentrate on a few differentiating features 67) The risks of a focused strategy based on either low-cost or differentiation include The chance that competitors outside the niche will find effective ways to match the focuser's capabilities in serving the target niche The potential for the preferences and needs of niche members to shift over time towards many of the same product attributes and capabilities desired by buyers in the mainstream portion of the market The potential for the segment to become so attractive that it is soon inundated with competitors, intensifying rivalry and splintering sales, profits and growth prospects The potential for segment growth to slow to such a small rate that a focuser's prospects for future sales and profit gains become unacceptably dim 68) Which one of the following does NOT represent market circumstances that make a focused low-cost or focused differentiation strategy attractive? When buyers are not strongly brand loyal and most industry competitors are pursuing some sort of a focused strategy 69) focused differentiation strategy aims at securing competitive advantage . With a product offering carefully designed to appeal to the unique preferences and needs of a narrow, well-defined group of buyers 70) The chief difference between a low-cost leader strategy and a focused low-cost strategy is The size of the buyer group that a company is trying to appeal to 71) A focused low-cost strategy seeks to achieve competitive advantage by Serving buyers in the target market niche at a lower cost and lower price than rivals 72) Companies pursuing a focused low-cost or focused differentiation strategy strive to Do a better job of serving the needs and expectations of buyers in the target market niche than other competitors in the industry 73) What sets focused (or market niche) strategies apart from low-cost leadership and broad differentiation strategies is Their concentrated attention on serving the needs of buyers in a narrow piece of the overall market 74) The big danger or risk of a best-cost provider strategy is That low-cost leaders will be able to steal away some customers on the basis of a lower price and high-end differentiators will be able to steal away customers with the appeal of better product attributes 75) Success in achieving a low-cost edge over rivals comes from: out-managing rivals in finding ways to perform value chain activities faster, more accurately, and more cost efficiently. 76) () Easy-to-copy differentiating features: cannot produce sustainable competitive advantage. 77) () The underlying criteria of a best-cost provider strategy usually is found in the ability of a company to: offer similar goods at more attractive prices. 78) () Cost-efficient management of a company's overall value chain activities requires that management: ferret out cost-saving opportunities in every part of the value chain. 79) () At the heart of a production-based emphasis toward a low-cost provider strategy usually requires a company to: strive for continuous cost reductions without sacrificing acceptable quality and essential features. 80) () A company attempting to be successful with a broad differentiation strategy has to: study buyer needs and behavior carefully to learn what buyers consider important, what they think has value, and what they are willing to pay for.
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