Week 4 - Cost Leardership

Week 4 - Cost Leardership - Integrated Core, Summer 2010...

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Click to edit Master subtitle style Week 4: Cost Leadership Integrated Core, Summer 2010 J-370, Strategy Component
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Chapter 4: Important Things to Know Understand the concept of business-level strategy Know what cost leadership is, and six reasons for the firms to differ in costs Know four reasons each for economies and diseconomies of scale Understand the value of cost leadership Be able to identify the bases of cost leadership that are more likely to be rare and costly to imitate Understand the differences between types of organizational structure
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Chapter 4: Important Terms to Know Business-level strategy Cost leadership Product differentiation Economies of scale Sources of cost advantages for firms Escalation of commitment Types of organizational structure
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The Strategic Management Process Mission Objectives External Analysis Internal Analysis Strategic Choice Strategy Implementation Competitive Advantage Business Level Strategy Corporate Level Strategy How to Position a Business in the Market? Which Businesses to Enter?
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Business Level Strategies Two Generic Business Level Strategies Cost Leadership Generate economic value by having lower costs than competitors Example: Wal-Mart Product Differentiation Generate economic value by offering a product that customers prefer over competitors’ product Example: Harley Davidson
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Why Cost Leadership Matters D ATCin d Q P Competitive Market ATCff Above Normal Economic Returns
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Understanding Cost Advantage Managers need to understand who has the cost advantage in their market It could be the focal firm Develop a strategy to exploit the advantage It could be a competitor Develop a strategy to either capture the advantage or compete on some other basis
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Sources of Cost Advantage Economies of Scale Average cost per unit falls as quantity increases – until the minimum efficient scale is reached Are a cost advantage because competitors may not be able to match the scale because of capital requirements (barrier to entry) International expansion may allow a firm to have enough sales to justify investing in additional capacity to capture economies of scale
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Question Wal-Mart—which pursues a cost leadership strategy—also spends heavily on advertising, which is a significant cost for the company. Why does it make strategic sense for Wal-Mart
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This note was uploaded on 11/05/2010 for the course BUS F370 taught by Professor Tom during the Spring '10 term at Indiana Institute of Technology.

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Week 4 - Cost Leardership - Integrated Core, Summer 2010...

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