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MIE 480_Exam 2_Study Guide

MIE 480_Exam 2_Study Guide - Review Sheet Exam II Chapter 5...

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Review Sheet Exam II Chapter 5 1. What is market segmentation? What is product differentiation? Which of the questions associated with Abell’s view of the process of business definition do these activities address? How can Abell’s questions be used to determine a firm’s generic business level strategy? Market segmentation (p.110): The way a company decides to group customers, based on important differences in their needs or preferences, in order to gain a competitive advantage. Product differentiation (p.110): The process of creating a competitive advantage by designing goods or services to satisfy customer needs. 2. According to Porter (1980), what are the four generic competitive strategies? Page 121: 3 Generic competitive strategies are: cost leadership, differentiation, and focus. Are called generic because all business or industries can pursue them, regardless of whether they are manufacturing, service, or nonprofit enterprises. Page 118 Cost-leadership strategy: Differentiation strategy: Focused cost-leadership strategy: Focused differentiation strategy: 3. What market/product/distinctive-competency choices are appropriate for a cost leadership strategy or a focus cost leadership strategy? (see summary in slides) Cost leadership offers products to many kinds of customers and offers low-priced products to customers. Cost leadership’s product differentiation is low (principally by price), it’s market segmentation is low (mass market) and it’s distinctive competency is manufacturing and materials managements. 4. Which market/product/distinctive-competency choices are appropriate for a differentiation strategy or a focus differentiation strategy? (see summary in slides) Differentiation strategy offers products to many kinds of customers and offers unique or distinctive products to customers. Differentiation has a high product differentiation, high market segmentation, and it’s distinctive competency is R&D, Sales and Marketing. 5. Be able to discuss the disadvantages of each of the generic business strategies. More specifically, what is the major threat to a firm using a cost leadership strategy? What is the major threat for a firm using a differentiation strategy, or a focus cost leader or focus differentiation strategy? The Chapter 5 slides have information on this and this section starts in the book on page 111. There is a good chart on page 112. A major threat to using cost leadership strategy is the competitor’s ability to find ways to produce at lower cost and beat the cost leader at its own game. Also, the cost leader, in a single-minded desire to reduce costs, may lose sight of customers’ tastes. They may compromise quality for cost which may not be what customers want. The main problem with a differentiation strategy center on a company’s long-term ability to maintain its perceived uniqueness in customers’ eyes. Patents and first-mover advantage last only so long.
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