Chapter 5 Notes

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Management (MGS)
Professor Constantinou

Chapter 5 Creating Business Strategies NotesTypes of StrategiesFinding a Position That Works y strategic positioning refers to the ways managers situate a firm relative to its rivals along important competitive dimensions y a firms choice of position should be influenced by two factors 1 firm resources and capabilities and 2 industry structure Generic Strategies y generic strategiesstrategic position designed to reduce the effects of rivalry including lowcost differentiation focused cost leadership focused differentiation and integrated positions y according to Porter there are two essential economic logics or the source of competitive advantage y these alternative sources of advantage are 1 having a lower cost structure than industry competitors are or 2 having a product or service that customers perceive as differentiated from other products in the industryto the point that they will pay higher price than what is charged for other products in the industry y firms also make choices about the number and breadth of arenas in which they will compete when they decide how broadly they will compete for customersa decision known as scope of arenas y four generic strategic positions result from the decisions measured by the model lowcost leadership broad differentiation focused or niche cost leadership and focused or niche differentiation y the primary classification criterion for the focused positions is that the firm targets one or a few related arenas or segments in an industry as opposed to many industry segments y lowcost leadershipstrategic position based on producing a good or offering a service while maintaining total costs that are lower than what it takes competitors to offer the same product or service y as a general rule because taking a lowcost position requires sacrificing some features or services firms that stake out this position try to satisfy basic rather than highly specialized customer needs y differentiationstrategic position based on products or offers services with quality reliability or prestige that is discernibly higher than that of competitors and for which customers are willing to pay y successful differentiation enables firms to do one of two things o set prices at the industry average and gain market share because consumers will choose higher quality at the same price o raise prices over those of competitors and reap the benefits of higher margins y focused cost leadershipstrategic position based on being a lowcost leader in a narrow market segment y focused differentiationstrategic position based on targeting products to relative
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