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Questions and Answers
What is organizational efficiency primarily related to?
What is organizational efficiency primarily related to?
Which factor contributes to improving organizational efficiency?
Which factor contributes to improving organizational efficiency?
Under what condition is cost leadership particularly effective?
Under what condition is cost leadership particularly effective?
What defines organizational lassitude/slack in a firm?
What defines organizational lassitude/slack in a firm?
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What is a characteristic of an effective cost leadership strategy?
What is a characteristic of an effective cost leadership strategy?
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What is a significant factor for customers that can enhance the importance of a cost advantage?
What is a significant factor for customers that can enhance the importance of a cost advantage?
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Which of the following is NOT mentioned as a barrier to imitation that can defend a cost advantage?
Which of the following is NOT mentioned as a barrier to imitation that can defend a cost advantage?
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In what scenario is a cost advantage based on the experience effect especially beneficial?
In what scenario is a cost advantage based on the experience effect especially beneficial?
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What makes it difficult for competitors to imitate certain cost factors?
What makes it difficult for competitors to imitate certain cost factors?
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Why is substituting a cost resource considered complicated in certain scenarios?
Why is substituting a cost resource considered complicated in certain scenarios?
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What is a potential consequence of excessive reliance on the experience effect?
What is a potential consequence of excessive reliance on the experience effect?
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How might inflation of production costs affect a firm's competitive advantage?
How might inflation of production costs affect a firm's competitive advantage?
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What might happen when a company's cost reduction efforts become obsessive?
What might happen when a company's cost reduction efforts become obsessive?
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Which factor could nullify a competitive advantage based on the experience effect?
Which factor could nullify a competitive advantage based on the experience effect?
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What challenge can arise from rapid imitation by competitors?
What challenge can arise from rapid imitation by competitors?
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Which action may be necessary to maintain a differentiation advantage?
Which action may be necessary to maintain a differentiation advantage?
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What could lead to a company being disconnected from market expectations?
What could lead to a company being disconnected from market expectations?
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What risk is associated with the constant monitoring of costs?
What risk is associated with the constant monitoring of costs?
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What is the primary requirement for a firm to achieve profitability beyond having a positive gross margin?
What is the primary requirement for a firm to achieve profitability beyond having a positive gross margin?
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What does 'stuck in the middle' refer to in a competitive strategy context?
What does 'stuck in the middle' refer to in a competitive strategy context?
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Which factor is NOT considered an external factor for creating a competitive advantage?
Which factor is NOT considered an external factor for creating a competitive advantage?
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What is typically required when pursuing a competitive advantage through differentiation?
What is typically required when pursuing a competitive advantage through differentiation?
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What role do internal factors play in creating a competitive advantage?
What role do internal factors play in creating a competitive advantage?
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Which competitive strategy focuses on developing unique product characteristics that justify a higher price?
Which competitive strategy focuses on developing unique product characteristics that justify a higher price?
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In a perfectly competitive market, which of the following features hinders the creation of a competitive advantage?
In a perfectly competitive market, which of the following features hinders the creation of a competitive advantage?
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Which of these is a necessary condition for a firm to maintain profitability in a competitive environment?
Which of these is a necessary condition for a firm to maintain profitability in a competitive environment?
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What primarily determines the ability of a competitor to imitate a firm's competitive advantage?
What primarily determines the ability of a competitor to imitate a firm's competitive advantage?
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Which of the following is NOT a barrier to imitation?
Which of the following is NOT a barrier to imitation?
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How can a cost leadership advantage benefit a firm regarding suppliers?
How can a cost leadership advantage benefit a firm regarding suppliers?
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What effect does industry dynamism have on competitive advantages?
What effect does industry dynamism have on competitive advantages?
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What is the learning effect in the context of cost advantage?
What is the learning effect in the context of cost advantage?
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How can a firm maintain higher margins while employing a cost leadership strategy?
How can a firm maintain higher margins while employing a cost leadership strategy?
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What is a potential drawback of the cost leadership strategy from a customer's perspective?
What is a potential drawback of the cost leadership strategy from a customer's perspective?
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Which of the following contributes to the cost advantage of a firm over its competitors?
Which of the following contributes to the cost advantage of a firm over its competitors?
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What is the primary objective of industry-wide differentiation?
What is the primary objective of industry-wide differentiation?
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What characterizes focused differentiation?
What characterizes focused differentiation?
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What is a potential problem with lowering prices after establishing a differentiated product perception?
What is a potential problem with lowering prices after establishing a differentiated product perception?
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What defines a hybrid strategy in the context of differentiation and pricing?
What defines a hybrid strategy in the context of differentiation and pricing?
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What is necessary for a firm to effectively implement a differentiation strategy?
What is necessary for a firm to effectively implement a differentiation strategy?
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What might encourage a firm to raise prices after achieving market share?
What might encourage a firm to raise prices after achieving market share?
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What is a key aspect of differentiation strategies?
What is a key aspect of differentiation strategies?
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What benefit does a hybrid strategy provide to a firm?
What benefit does a hybrid strategy provide to a firm?
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Study Notes
Competitive Advantage and Strategy
- Competitive Advantage: A firm's aspect that distinguishes it from competitors, enabling better performance.
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Requirements for Competitive Advantage:
- Linked to key success factors in the market
- Substantially impactful
- Sustainable through environmental and competitor changes
- Value Created: The difference between the value customers place on a product/service and its cost.
- Components of Value Created:
- Margin: The portion of value the firm keeps.
- Customer Value Added: The portion of value passed to the customer.
- Analysis of Customer Value Added: assesses customer satisfaction and likelihood to purchase.
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Competitive Advantages:
- Low Cost: Focus on lower production costs/prices.
- Differentiation: Focus on unique features perceived valuable by customers.
Competitive Strategy
- Competitive Strategy: The approach a firm takes to face competitors and gain an advantage.
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Porter's Competitive Strategies: Strategies that combine competitive advantage with a specific scope in the market.
- Cost Leadership: Focus on lowest costs in a market.
- Product Differentiation: Focus on attributes customers value.
- Market Segmentation: Focusing on specific customer groups.
Creating and Sustaining Competitive Advantage
- External Advantage: Factors that enable a firm to create a competitive advantage in the market. These factors impede perfect competition, including product homogeneity, equal pricing, and complete information on agents. Complete lack of entry barriers also impedes competitive advantage.
- Internal Advantage: Factors that enable a firm to create a competitive advantage within the firm. This includes resources and strategic capabilities that are deployed to provide a competitive advantage. Also important is the sum of resources and capability development.
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Sustaining Competitive Advantage: Factors that enable the firm to maintain their competitive advantage by:
- Imitation Barriers: Obstacles that stop competitors from copying a competitive advantage. These barriers include causal ambiguity, protected knowledge, unique assets and corporate culture
- Competitor Ability: Difficulty of imitating a rivals competitive advantage
- Industry Dynamism: How quickly the industry/market changes (more dynamism creates conditions for competitive advantage to be more transitory).
Conditions of Application and Implementation of Cost Advantage
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Structural Factors: Conditions necessary for a successful cost leadership strategy.
- Customers are price-sensitive.
- Price competition is significant.
- Products are standardized.
- Customers have substantial bargaining power.
Conditions of Application and Implementation of Differentiation Advantage
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Market Characteristics: Conditions supporting a successful differentiation strategy
- Significant customer variability of tastes and needs
- The availability of resources required to support a differentiation strategy
Maintaining Cost Advantage and Risks
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Barriers to Imitation: Features that protect from competitors imitating a cost advantage.
- Scarcity of cost resources within an industry
- Complexity of the firm’s decision-making processes.
Maintaining Differentiation Advantage and Risks
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Barriers to Imitation: Issues that protect a differentiation advantage from imitation and duplication by competitors include
- Highly complex interrelationships within the firm
Risks That Might Remove the Competitive Advantage
- Monitoring Costs: Keep an eye on unnecessary costs to quickly implement a cost savings.
- Excessive Use of Experience Effect: Avoiding overly standardized products and procedures that may block innovation.
- Constant Observation of Competition: Anticipating potential competitive actions and preparing to counter them.
Strategies Based on an Industry's Life Cycle
- Emergence: High growth expectations and a low number of competitors.
- Growth: Rapid increases in demand, intense competition, and opportunities to differentiate products, services, or processes.
- Maturity: A decline in demand-driven growth, and competition for market share.
- Decline: Low growth rates, reduced customer interest and intense competition.
Strategies for Emerging Industries
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Shaping Industry Structure:
- Establishing rules for competition.
- Creating opportunities for better positioning in the long run.
- Choosing Timing of Entry: Understanding competitor strategy and entering the market at the appropriate time.
Strategies for Declining Industries
- Industry Leadership: Controlling the industry in the early decline stages.
- Harvest: Optimizing short-term cash flow while preparing for a possible exit from the industry.
- Rapid Withdrawal: Exiting the market quickly.
Strategies for Declining Industries
- Maintaining or improving a competitive position as the industry develops.
- Attracting new customers.
- Product Differentiation
Strategies Desgined for Ultimate Failure
- High Price, Low Value Added: Pricing products higher than the perceived value added by customers.
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Description
Test your understanding of competitive advantage and strategy concepts. This quiz covers key factors that distinguish firms in the market and explores the components of value creation. Challenge yourself to identify different competitive strategies and their implications for business success.
