Sustainable Competitive Advantage Quiz
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Questions and Answers

What protects a company from imitation in its competitive strategy?

  • Financial resources available for marketing
  • A singular focus on a single competitive advantage
  • An activity system that relies on consistent trade-offs (correct)
  • Unique products that cannot be replicated

    • Which type of fit involves a simple consistency between each activity and the overall strategy?

  • First-order fit (correct)
  • Third-order fit
  • Competitive fit
  • Second-order fit

    • What best characterizes second-order fit in a competitive strategy?

  • Reinforcement between activities increasing their attractiveness (correct)
  • Focus solely on cost-cutting measures
  • Simple alignment with external trends
  • Redundancy between activities

    • What is the primary purpose of optimizing effort in an activity system?

    <p>To eliminate redundancy and minimize wasted effort</p> Signup and view all the answers

    How does Walmart exemplify the concept of consistency in its competitive strategy?

    <p>By ensuring activities align with its low-cost positioning</p> Signup and view all the answers

    Which of the following is NOT a type of fit described in the competitive strategy?

    <p>Qualitative fit</p> Signup and view all the answers

    What role do trade-offs play in an organization’s competitive strategy?

    <p>They create barriers for potential imitators through complexity</p> Signup and view all the answers

    What example best illustrates third-order fit in strategic activities?

    <p>Coordination between a company and its suppliers to reduce in-house needs</p> Signup and view all the answers

    What is essential for a sustainable competitive advantage?

    <p>Aligning and reinforcing a system of interdependent activities</p> Signup and view all the answers

    Which of the following factors does NOT contribute to the sustainability of a competitive advantage?

    <p>Having a unique product with no operational strategy</p> Signup and view all the answers

    Why is it important for a firm to anticipate changes in its environment?

    <p>To adapt its strategy and ensure long-term success</p> Signup and view all the answers

    How does industry structure influence competition and profitability?

    <p>It drives the intensity of competition and overall industry profitability</p> Signup and view all the answers

    What is meant by 'choosing what NOT to do' in a strategy?

    <p>It highlights the importance of resource allocation and trade-offs</p> Signup and view all the answers

    Which approach is necessary to develop a system of activities that supports competitive advantage?

    <p>Ensuring interdependence among multiple activities</p> Signup and view all the answers

    What is a key characteristic of firms that consistently perform better over time?

    <p>They maintain a unique and valuable position with distinct activities</p> Signup and view all the answers

    What is the outcome of optimizing efforts at the activity system level?

    <p>Enhanced performance and efficiency across activities</p> Signup and view all the answers

    What is the primary impact of the threat of new entrants in an industry?

    <p>It prompts incumbents to either lower prices or invest more.</p> Signup and view all the answers

    Which of the following accurately describes supply-side economies of scale?

    <p>They occur when firms with larger outputs have lower unit costs.</p> Signup and view all the answers

    What are customer switching costs?

    <p>Expenses incurred by buyers when they change suppliers.</p> Signup and view all the answers

    Which of the following factors is NOT considered a barrier to entry?

    <p>Government policies that foster competition.</p> Signup and view all the answers

    What kind of advantages might incumbents have that are independent of size?

    <p>Proprietary technology and established brand identities.</p> Signup and view all the answers

    What might newcomers fear regarding expected retaliation from incumbents?

    <p>The likelihood of price cuts to maintain market share.</p> Signup and view all the answers

    How do demand-side benefits of scale influence new entrants?

    <p>They enhance the value of products as more customers buy.</p> Signup and view all the answers

    Which of the following examples best illustrates the concept of diversifying entrants shaking up competition?

    <p>Pepsi entering the bottled water market.</p> Signup and view all the answers

    What was a primary reason for franchising bottlers in the franchise system?

    <p>To ensure accessibility across the US</p> Signup and view all the answers

    What benefit did Pepsi and Coke gain from buying back bottlers?

    <p>Increased economies of scale</p> Signup and view all the answers

    How is competitive advantage related to industry analysis?

    <p>It helps devise strategies based on industry attractiveness</p> Signup and view all the answers

    What does the 'Value Stick' concept indicate?

    <p>A necessary condition for value creation is WTP being higher than WTS</p> Signup and view all the answers

    What does a wider wedge indicate for a firm?

    <p>Increased competitive advantage and potential for profit</p> Signup and view all the answers

    Which statement best characterizes strategy?

    <p>It is the creation of a unique position with different activities</p> Signup and view all the answers

    What role does buyer's willingness to pay (WTP) play in determining a firm's price?

    <p>It influences price along with costs to the firm</p> Signup and view all the answers

    What is a consequence of high supplier power for bottlers?

    <p>High switching costs for bottlers</p> Signup and view all the answers

    What is the main advantage of a differentiation strategy?

    <p>It enables a firm to boost the willingness to pay (WTP) for its output.</p> Signup and view all the answers

    What happens when a second firm enters the market at a lower price point?

    <p>Price will decrease until it equals the cost of production.</p> Signup and view all the answers

    Which of the following is NOT a way for firms to generate a cost advantage?

    <p>Differentiation of product features.</p> Signup and view all the answers

    What is a challenge associated with pursuing a low-cost strategy?

    <p>Maintaining proximity in quality with competitors.</p> Signup and view all the answers

    How does proprietary knowledge help firms lower costs?

    <p>Through optimizing inventory management.</p> Signup and view all the answers

    What is the outcome of the cost leadership strategy?

    <p>Achieving low prices while ensuring acceptable product features.</p> Signup and view all the answers

    Which factor is critical to achieving economies of scale?

    <p>Spreading fixed costs over larger volumes.</p> Signup and view all the answers

    What impact does a firm’s ability to source from low-cost locations have?

    <p>It typically results in reduced input costs.</p> Signup and view all the answers

    Study Notes

    Sustainable Competitive Advantage

    • A sustainable competitive advantage relies on a system of multiple activities that complement each other and are difficult to imitate.
    • Examples of reinforcing activities: Neutrogena marketing products to upscale hotels, leveraging dermatologists' recommendations to boost both medical and hotel marketing efforts.

    Optimizing Effort (Third-Order Fit)

    • Eliminate redundancy and minimize effort by coordinating activities and sharing information.
    • Product design choices can minimize the need for after-sale service, allowing customers to perform self-service.
    • Collaboration with suppliers or distribution channels can eliminate internal activities like end-user training.
    • Trade-offs help protect against imitation because competitors must replicate the entire activity system, including the sacrifices made.

    Value Stick:

    • Value created in a market occurs when the buyer's WTP (willingness to pay) exceeds the supplier's OC (opportunity cost).
    • The value stick represents the difference between WTP and OC, with the firm capturing value through its pricing and cost structure.
    • A firm with a wider wedge between WTP and OC has a competitive advantage and potential for greater profits.

    Porter's Five Forces: Industry Attractiveness

    • Entry barriers affect the profitability of an industry by influencing the threat of new entrants.
    • Entry barriers include supply-side economies of scale, demand-side network effects, customer switching costs, capital requirements, incumbency advantages, access to distribution channels, and restrictive government policies.
    • An industry's attractiveness is determined by the intensity of competition, which is influenced by the five forces: threat of new entrants, bargaining power of suppliers, bargaining power of buyers, threat of substitutes, and rivalry among existing competitors.

    Strategy and Competitive Advantage

    • Competitive advantage results from a distinctive set of activities that differentiate a firm from its rivals.
    • The activities should be consistent with each other, reinforcing, and optimized at the system level to achieve sustainability.
    • Walmart’s activities are coherent with its low-cost positioning, showcasing the importance of consistency in strategy.

    Strategic Integration

    • A successful strategy integrates all aspects of a firm’s operations, considering its internal environment, external environment, and potential changes over time.
    • It involves identifying a unique and valuable position that involves distinct activities compared to competitors.
    • Choosing what not to do is as crucial as choosing what to do to achieve a sustainable competitive advantage.

    Industry Analysis and Competitive Advantage

    • Industry analysis helps identify opportunities to create a competitive advantage by exploiting the attractive features of an industry and neutralizing its unattractive features.
    • Some industries have limited room for superior wedges due to restrictive structures.

    Differentiation vs. Low-Cost Strategy

    • A differentiation strategy focuses on raising WTP with minimal cost increases, while a low-cost strategy aims for significant cost savings with only minor reductions in WTP.
    • Both strategies aim to widen the wedge between WTP and OC to generate profits.

    Cost-Based Positioning (Cost Leadership)

    • Cost Leadership involves performing activities differently to achieve lower costs than competitors.
    • This strategy aims to produce acceptable quality goods or services at the lowest possible cost, resulting in above-average profitability with relatively low prices.
    • Challenges include maintaining product quality and potential trade-offs in differentiation.

    Generating a Cost Advantage

    • Firms can achieve cost advantages through economies of scale (spreading fixed costs), learning and experience curves, proprietary knowledge, lower input costs (sourcing from low-cost locations or collaborating with suppliers), and adopting different business models.

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    Description

    Test your knowledge on sustainable competitive advantages and third-order fit in business. Explore how coordinated activities and strategic trade-offs contribute to optimizing effort and creating value in the market. Answer questions related to real-world examples and theoretical concepts.

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