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Microsoft Word - Document3 Assignment 08 – Strategic Management BU470 Directions: Answer in complete sentences Be sure to use correct English, spelling and grammar. Sources must be cited in APA format. Your response should be four (4) double-spaced pages. Margins 1” all sides Headings Bold Type Style Size Times New Roman 12-point Software MS Word Making strategic decisions are part of the territory when it comes to the job of an analyst. You’ll need to decide what to do in a given circumstance and then answer questions to explain your decisions. Let’s say you are a Strategic Analyst for a Fortune 500 Company, and your CEO has asked you how to position a specific business and product line to gain a competitive advantage in a single market. This scenario is the foundation of lessons 5, 6, 7, 8, covered in the textbook. Part A: Product Differentiation Part A refers to the material discussed in Lesson 5 of this course. Using logical, clear writing, do the following: 1. Define product differentiation and discuss the role that customer perceptions play in product differentiation. 2. Identify the three broad categories of product differentiation and two bases of differentiation under each category. 3. Explain the relationship between product differentiation and managerial creativity. Part B: Flexibility and Real Options Part B refers to the material discussed in Lesson 6 of this course. Using logical, clear writing, answer the following: 1. What is strategic flexibility? Why is it thought of as a third generic business-level strategy? 2. What are strategic options? 3. What are real options? Part C: Collusion Part C refers to the material discussed in Lesson 7 of this course. Using logical, clear writing, answer the following: 1. What is collusion? 2. What are the two types of collusion and how are they different? 3. How does signaling relate to collusion? Part D: Vertical Integration Part D refers to the material discussed in Lesson 8 of this course. Using logical, clear writing, do the following: 1. Define vertical integration and differentiate between forward vertical integration and backward vertical integration. 2. Identify the three fundamental explanations of how vertical integration can create value and discuss how value is created under each. 3. Identify three reasons a firm may be able to create value through vertical integration when most of its competitors are not able to create value through vertical integration. Lesson 5 - Part A/Chapter 5.pdf Strategic Management & Competitive Advantage: Concepts and Cases Sixth Edition Chapter 5 Product Differentiation Copyright © 2019 Pearson Education, Inc. All Rights Reserved Copyright © 2019 Pearson Education, Inc. All Rights Reserved Learning Objectives (1 of 2) 5.1 Define product differentiation, describe 11 bases of product differentiation, and how these bases of product differentiation can be grouped into three categories. 5.2 Describe how product differentiation can create economic value. 5.3 Describe: a. Those bases of product differentiation that are not likely to be costly to duplicate, those that may be costly to duplicate, and those that will often be costly to duplicate. Copyright © 2019 Pearson Education, Inc. All Rights Reserved Learning Objectives (2 of 2) b. The main substitutes for product differentiation strategies. 5.4 Describe how organizational structure, control processes, and compensation policies can be used to implement product differentiation strategies. 5.5 Discuss whether it is possible for a firm to implement cost leadership and product differentiation strategies simultaneously. Copyright © 2019 Pearson Education, Inc. All Rights Reserved The Strategic Management Process Copyright © 2019 Pearson Education, Inc. All Rights Reserved 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 Copyright © 2019 Pearson Education, Inc. All Rights Reserved Product Differentiation A business level strategy is intended to: • increase the perceived value of the focal firm’s products and/or services relative to the value of competitor’s products and/or services • create a customer preference for the focal firm’s products and/or services Copyright © 2019 Pearson Education, Inc. All Rights Reserved Bases of Differentiation (1 of 7) A base of differentiation must fill some customer need: • image • hunger • comfort • cleanliness • beauty • status • style • taste • safety • quality • service • accuracy • furthering a cause • reliability in use • nostalgia • belonging A differentiated product fills one or more needs better than the products of competitors. Copyright © 2019 Pearson Education, Inc. All Rights Reserved Bases of Differentiation (2 of 7) Almost anything can be a base of differentiation. • The wide range of customer needs can be filled by a wide range of bases of differentiation. – tangible thing (product features, location, etc.) – intangible concept (reputation, a cause, an ideal, etc.) – limited only by managerial creativity Example: Fred Smith and FedEx Copyright © 2019 Pearson Education, Inc. All Rights Reserved Bases of Differentiation (3 of 7) Three Categories 1. Product Attributes • exploiting the actual product 2. Firm–Customer Relationships • exploiting relationships with customers 3. Firm Linkages • exploiting relationships within the firm and/or relationships with other firms Copyright © 2019 Pearson Education, Inc. All Rights Reserved Bases of Differentiation (4 of 7) Product Attributes • Product Features—the shape of a golf club head • Product Complexity—multiple functions on a watch • Timing of Introduction—being the first to market • Location—locating next to a freeway exit Copyright © 2019 Pearson Education, Inc. All Rights Reserved Bases of Differentiation (5 of 7) Firm–Customer Relationships • Customization—creating a unique diamond bracelet for a customer • Consumer Marketing—creating brand loyalty to a soap through image advertising • Reputation—sponsoring the local homeless shelter to engender positive community response Copyright © 2019 Pearson Education, Inc. All Rights Reserved Bases of Differentiation (6 of 7) Firm Linkages • Linkages among Functions in the Firm—using a circuit board designed in one division in other divisions • Linkages with Other Firms—a sporting goods store sponsors a benefit race by donating running shoes and receives free radio advertising in return • Product Mix—a furniture store begins to sell home gym equipment, computers, and lawn mowers Copyright © 2019 Pearson Education, Inc. All Rights Reserved Bases of Differentiation (7 of 7) • Distribution Channels—a doughnut shop begins to sell its doughnuts through gas stations • Service and Support—an oil change shop begins to offer pick up and delivery of cars in an office building’s parking garage Copyright © 2019 Pearson Education, Inc. All Rights Reserved Competitive Advantage A product differentiation strategy must meet the VRIO criteria… Is it Valuable? Is it Rare? Is it costly to Imitate? Is the firm Organized to exploit it? …if it is to create competitive advantage. Copyright © 2019 Pearson Education, Inc. All Rights Reserved The Value of Product Differentiation (1 of 5) Neutralizing Threats Copyright © 2019 Pearson Education, Inc. All Rights Reserved The Value of Product Differentiation (2 of 5) Copyright © 2019 Pearson Education, Inc. All Rights Reserved The Value of Product Differentiation (3 of 5) Exploiting Industry-Type Opportunities Fragmented Industry Example: Kellogg’s Corn Flakes Emerging Industry First mover advantages: captures market share Example: Motorola Cell Phones Copyright © 2019 Pearson Education, Inc. All Rights Reserved The Value of Product Differentiation (4 of 5) Exploiting Industry-Type Opportunities Mature Industry Refining product or adding services Example: Ford’s emphasis on service Declining Industry Exploiting niches: serving those with strong needs Example: NEWT at the Royal Hawaiian Copyright © 2019 Pearson Education, Inc. All Rights Reserved The Value of Product Differentiation (5 of 5) Exploiting Other Opportunities Copyright © 2019 Pearson Education, Inc. All Rights Reserved Rareness of Product Differentiation By definition, we assume rareness • if a product is differentiated, it is rare enough • customer preferences are evidence of a differentiated product – increased volume of purchases – and/or a premium price Copyright © 2019 Pearson Education, Inc. All Rights Reserved Imitability of Product Differentiation (1 of 3) Logic of costs of imitation • If would-be imitators face a cost disadvantage of imitation, they will rationally choose not to imitate. Sources of costs of imitation • historical uniqueness • causal ambiguity • social complexity Copyright © 2019 Pearson Education, Inc. All Rights Reserved Imitability of Product Differentiation (2 of 3) Copyright © 2019 Pearson Education, Inc. All Rights Reserved Imitability of Product Differentiation (3 of 3) Substitutes • Some substitutes may be obvious. • Some substitutes may not be obvious. • If no substitutes are obvious, then we would conclude that imitation through substitution will be costly—at least for the present time. • If a base of differentiation is valuable, others will attempt to imitate it through duplication and/or substitution. Copyright © 2019 Pearson Education, Inc. All Rights Reserved Organizing for Product Differentiation Organizational Structure • U-form with cross- functional teams Management Controls • flexibility • broad guidelines • creativity encouraged Compensation Policies Reward: • cross-functional cooperation • creativity • risk taking Example: Ford Taurus Cross-Functional Teams Copyright © 2019 Pearson Education, Inc. All Rights Reserved Cost Leadership and Product Differentiation Can a firm pursue both simultaneously? No • Use of structure, management control, and compensation policies are nearly opposites. • Example: Rolex Yes • Firms can do both because some bases of differentiation also lend themselves to low cost. • Structure, controls, and policies are not opposites. • Example: Toyota Copyright © 2019 Pearson Education, Inc. All Rights Reserved Summary • Product differentiation creates customer preferences. • Preferences allow firms to make above-normal profits. • Almost anything can be a base of differentiation. • Bases of product differentiation that meet the VRIO criteria may generate competitive advantage. • A product differentiation strategy is only as good as its implementation. Product differentiation principles can be applied to your personal and professional lives. Copyright © 2019 Pearson Education, Inc. All Rights Reserved The Value of Product Differentiation Copyright © 2019 Pearson Education, Inc. All Rights Reserved Copyright Lesson 5 - Part A/Lesson 5.pdf Lesson 5 – Product Differentiation Welcome to Lesson 5! You’ve now passed the halfway mark for the course. Congratulations! In this lesson we will examine product differentiation. Product differentiation is a business-level strategy in which firms attempt