study guide Essay

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Exam 2 Study Guide
All material in Chapters 4, 5, & 6 including
Value creation can be done in 2 ways, by lowering cost, or by making product more attractive, since consumer will put higher value on it and might pay more for that. (V- C value to consumer – cost)
Consumer surplus- (V- P value- price)
Profit margin- (P-C price – cost) (higher price translates to higher profits)
Return on invested capital – (P-C)/capital
Building blocks of competitive advantage – figure 4.3 (efficiency, quality, innovation, customer responsiveness), any company can adapt this

Functional strategies
Strategic fit at the functional level
Flexible manufacturing – a range of manufacturing technologies designed to reduce time for complex equipment, increase the individual use of machine, and improve the quality control. Also known as lean production.
Customer defection Rates – the percentage of company’s customers who defect every year to competitors.
Learning effects
Experience curve
Failure rate of innovation

Resource based view of competitive advantage – resources are financial, physical, social, or human, technological, and organizational factors that allow a company to create value for its customers. Pages 93-107
Tangible resources- are something physical such as land, building, equipment, money
Intangible resources- nonphysical which are creations of man, such as brand name, reputation, knowledge, intellectual property.

Barriers to imitation
Jay Barney

Resources and Capabilities- resources are financial, physical, social or human, technological, and organizational factors that allow a company to create value for customers. Capabilities- refer to a company skills at coordinating its resources and putting them to productive use.
Figure 4.6
Durability of advantage
Market segmentation – the way the company decides to group customers based on differences in their needs and preferences.
Distinctive competencies – a unique firm specific strength that enables company do better differentiate its product and achieve lower cost.
Product Differentiation – the process of creating a competitive advantage by designing goods or services to satisfy customers.
Business-level strategy – the plan of action to use company’s resources to gain advantage
Broad Cost leadership – trying to outperform competition by doing everything possible to produce goods at the lower cost than they do.
Broad differentiation – a company that offers a product designed for each market niche.
Focus cost leadership
Focus differentiation

Cost leadership and differentiation- in general companies can combine these two generic strategies. Traditionally differentiation was obtained only at high cost, because manufacturing was done for many different markets and it was very short period and it was keeping the cost high. (Pages 124-124)
Stuck in the middle- the faith of the company whose strategy fails because it has made product/market choices in a way that does not lead to a sustained competitive advantage.

Advantages and disadvantages of each business-level strategy – types of it are focused cost leadership strategy, cost leadership strategy, focused differentiation strategy, differentiation strategy.(-age 127) focused company advantage comes from efficiency, quality, innovation, or responsiveness to customer. They have power over buyers, since they can’t get that product from anyone else. Disadvantage is that focused company buys input in small volume and they are in supplier’s power. Price can be an issue for the rest of them.

Strategies to consolidate a fragmented industry – chaining, franchising, horizontal merger, IT and internet. Channing-advantage of cost leadership. Companies like Walmart are so big that they have pig power over their suppliers and get things by low cost since they buy a lot. Franchising- business strategy, they are allowed to use brand name, products, everything that the company has. Horizontal merger –