Strategy - Competitive Advantage (Class 6)

Front 1

Competitive advantage can emerge from internal and external factors...
What are the external factors and how do they create the competitive advantage?

Back 1

External Factors include:
• changing customer demand,
• changing prices,
• technological change,
But the competitive advantage comes from the fact that
• some firms are faster and more effective in exploiting change
• And differences in resources among firms mean differential impact

Front 2

Competitive advantage can emerge from internal and external factors...
What are the internal factors and how do they create the competitive advantage?

Back 2

Some firms have greater creative and innovative capability

Front 3

What are the sources of competitive advantage?

Back 3

Cost Advantage
Differentiation Advantage

Front 4

What are Porter's Generic strategies?

Back 4

o Combine two types of competitive advantage (cost or differentiation) with the firm’s choice of scope (broad or focused) (i.e. Differentiation, Cost Leadership, Cost-Focus, Differentiation-Focus)

Front 5

What are drivers of cost-advantage?

Back 5

o Economies of scale
o Economies of learning
o Production techniques
o Product Design
o Input Costs
o Capacity Utilization
o Residual efficiency

Front 6

What are the competitive strengths of cost leadership?

Back 6

o Rival Competitors: compete using low price
o Buyers: nullify power to drive down prices
o Suppliers: flexibility to cope with input cost increases
o Potential Entrants: more efficient through EOS and pricing power
o Substitute Products: potential use of low price

Front 7

What are the drawbacks of cost leadership?

Back 7

o Being overly aggressive in cutting price
o Low cost methods are easily imitated by rivals
o Becoming too fixated on reducing costs and ignoring
• Buyer interest in additional features (tests)
• Declining buyer sensitivity to price
• Changes in how the product is used
o Technological breakthrough open up cost reduction for rivals

Front 8

What are the 5 stages to becoming a cost leader?

Back 8

o Stage 1: Identify the principle activities of the business
o Stage 2: Allocate Total Costs
o Stage 3: Identify Cost Drivers
o Stage 4: Identify Linkages
o Stage 5: Recommendations for cost reduction

Front 9

What is a differentiation strategy?

Back 9

o Providing something that is unique and valuable to buyers beyond simply offering a lower price
o Receive a price premium that exceeds the cost of differentiation

Front 10

Why is differentiation NOT just about offering different product features? What else is it about?

Back 10

• Also about understand interaction between firm and customers → can these interactions be enhanced or changed to deliver additional value?

Front 11

What is the difference between tangible and intangible differentiation?

Back 11

Tangible
• Physical product characteristics
• Services or complementary goods
Intangible
• Unobservable and subjective characteristics that appeal to customer’s image, status, identity, and desire for exclusivity
o Firm’s reputation
o Subjective image of the product

Front 12

Differentiation is not just about the product, it's about embracing ________________________

Back 12

the whole relationship between the supplier and the customer

Front 13

Differentiation is concerned with ______ a firm competes - the ways in which it can offer _________ to customers

Back 13

how ; uniqueness

Front 14

Uniqueness (as it relates to differentiation) can include many things, such as:

Back 14

• Consistency
• Reliability
• Status
• Quality
• Innovation
• Intensity of marketing activities
• Location
• Technological leadership

Front 15

What are the competitive strengths of differentiation?

Back 15

• Rival Competitors: Brand loyalty and lower sensitivity to price
• Buyers: Lack of alternatives and low sensitivity to price
• Suppliers: High Margins provide ability to pay increase in input costs
• Potential Entrants: Buyer Loyalty and uniqueness of product / service
• Substitutes: Lack of comparable features and customer loyalty

Front 16

What are the drawbacks to differentiation?

Back 16

• Trying to differentiation on a feature buyers do not perceive as lowering their cost or enhancing their well-being
• Over-differentiating such that the product features exceed the customers’ needs
• Charging a price premium that customers perceive is too high
• Failing to signal value
• Not understanding what customers want or prefer and differentiating on the “wrong” things
• Low-cost strategy can defeat a differentiation strategy when customers are satisfied with a standard product and do no see extra attributes as worth paying for

Front 17

What is the main difference between differentiation and segmentation?

Back 17

• Differentiation is concerned with how a firm distinguished its offerings from those of its competitors (how a firm competes)
• Segmentation is concerns with which customers, needs, localities a firm targets (where a firm competes)
• SO, whereas segmentation is a feature of market structure, differentiation is a strategic choice by a firm. Differentiation is concerned with a firm’s positioning within a market in relation to the product, service and image characteristics that influence customer choice

Front 18

Differentiation does not necessarily imply segmentation. It depends on the differentiation strategy. What are the kinds of differentiation strategies and how do they differ?

Back 18

(1) Broad Scope Differentiation
• Appealing to what is common between different customers
(2) Focused Differentiation
• Appealing to what distinguishes different customer groups

Front 19

How can you identify the potential for a differentiation strategy on the demand side?

Back 19

• Knowing what needs the product satisfies
• Knowing the customer (criteria by which they choose products and what motivates them)

Front 20

How do you formulate a differentiation strategy?

Back 20

• Select product positioning in relation to product attributes
• Select target customer group
• Ensure customer / product compatibility
• Evaluate costs and benefits of differentiation

Front 21

How can you use the value chain to identify differentiation potential on the supply side?

Back 21

• Firm Infrastructure, human resource management, technology development
• Inbound Logistics: Quality of components and materials
• Operations: Defect free products. Wide variety.
• Outbound logistics: Fast delivery; efficient order processing
• Marketing & Sales: Building brand reputation
• Customer Technical support; Consumer Credit; availability of spares

Front 22

(1) What is a focus strategy?

(2) What does it concentrate on?

Back 22

(1) Either cost leadership or differentiation but in a narrow group or segment

(2) o Concentrates on serving specific market niche
• Geographical area
• Type of Customer
• Specific and Specialized Product Line

Front 23

(1) Cost focus means the company achieves lower cost than rivals in serving _____________.

Differentiation focus means offering customers in the niche market something unique in that market, which can be...

Back 23

(1) specific or narrow segment

(2)
• Product Features
• Product innovations
• Product quality
• Customer responsiveness

Front 24

What are the advantages of focus strategies?

Back 24

• The focuser knows its market niche and knows it well
• The focuser can stay close to customer and respond quickly to their changing needs
• The focuser can develop strong brand loyalty which can be difficult for other competitors to overcome

Front 25

What are the drawbacks to focus strategies?

Back 25

• Small scale is difficult to lower costs (but technology minimizes this drawback)
• Competition can match capabilities easier
• Niche can become part of overall market
• Splintering of profits when niche becomes popular with more competitors

Front 26

What is Broad differentiation?

Back 26

when a differentiator pursues its strategy in a way that also allows it to lower its cost structure

Front 27

What are some examples of ways in which broad differentiation can be achieved?

Back 27

• Usage of Robots / Machinery
• Standardizing parts for EOS
• Limiting customer options
• JIT inventory
• Production in countries with low labor costs

Front 28

What is unique about the broad differentiation strategy?

Back 28

These companies push out the value frontier by constant improvement of strategy. They pursue strategies in such a way that it allows the company to differentiate and also lower cost structure at the same time.

Front 29

What happens to competitors when a firm assumes a broad differentiation strategy?

Back 29

Causes regular differentiators and cost leaders to, over time, lose their distinctive competencies that led to past superior performance

Front 30

Should Ducati get into cruisers?

Back 30

If Ducati moves to cruisers in the US, Harley Davidson would likely increase aggressive marketing and not lower cost of bike

But if Ducati is backed by Audi, they can match the marketing, and they have a lower priced bike

But then also consider what Ducati does best and not wanting to spoil brand image