GBA Test 2 Chapter 5 What’s the biggest difference between competitive strategies? • Whether a company’s market target is broad or narrow • Whether the company is pursuing a competitive advantage linked to low costs or product differentiation How does a low-cost leader translate its low-cost advantage into superior profit performance? • If: prices are cut by less than the size of the unit cost advantage • Or: the added gains in unit sales are large enough to bring in a bigger total profit despite lower margins per unit sold What is a company’s biggest vulnerability in employing a best-cost strategy? • Getting squeezed between the strategies of firms using low-cost and high-end differentiation strategies (must offer customers significantly better product attributes in order to justify a price above what low-cost leaders are charging; likewise, it has to achieve lower costs in providing upscale features so that it can outcompete high-end differentiators on the basis of a significantly lower price) Chapter 6 What is a blue ocean strategy?-Seeks to gain a dramatic and durable competitive advantage by abandoning efforts to beat out competitors in existing markets and, instead, inventing a new industry or distinctive market segment that renders existing competitors largely irrelevant and allows a company to create and capture altogether new demand-Offers superior opportunities for profitability and growth Which rivals make the best targets for an offensive attack? • Market leaders that are vulnerable o Unhappy buyers, inferior product line, weak competitive strategy with regard to low-cost leadership or differentiation, strong emotional commitment to aging technology the leader has pioneered, outdated plants and equipment, preoccupation with diversification into other industries, mediocre or declining profitability Ex: Toyota product recalls due to safety concerns presented others car companies with prime opportunity to attack vulnerable and distracted market leader o Challenger is able to revamp value chain or innovate to gain fresh cost-based or differentiation-based competitive advantage; to be successful, attacks on leaders don’t have to make aggressor new leader, but strong runner-up • Runner-up firms with weaknesses in areas where the challenger is strong o Runner-up firms especially attractive when challenger’s resources and capabilities are well suited to exploiting their weaknesses • Struggling enterprises that are on the verge of going under o Challenging a hard-pressed rival in ways that further reduce its financial strength and competitive position can weaken its resolve and rush its exit from the market • Small local and regional firms with limited capabilities o Because small firms have limited expertise, challengers with broader and/or deeper capabilities are well positioned to raid their biggest and best customers—particularly those who are growing rapidly, have increasingly sophisticated requirements and thinking about switching to a supplier with more full-service
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