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Management Ch 5 Notes.docx

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Xi Wang

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Intro to Management Chapter 5 Notes The Five Generic Competitive Strategies 1) Low cost provider strategy - Striving to achieve overall lower costs than rivals on comparable products that attract a broad spectrum of buyers - A company achieves low cost leadership when it becomes the industry’s lowest cost provider rather than just being one of perhaps several competitors with comparatively low costs; do not necessarily have the absolute lowest costs - How to achieve a cost advantage: - A) perform value chain activities more cost-effectively than rivals - Pay a great deal of attention to cost drivers, which is a factor that has strong influence over a company’s costs, and focus on cutting these cost drivers down - Strive to capture all economies of scale - Taking full advantage of experience and learning curve effects - Trying to operate facilities at full capacity - Improving supply chain efficiency - Using lower cost inputs if they will not sacrifice quality - Using bargaining power with suppliers or others in value chain system to gain concessions - Using communication and IT to achieve operating efficiencies - Being alert to the cost advantages of outsourcing or vertical integration - Motivating employees through incentives and company culture - B) revamp the firm’s overall value chain to eliminate or bypass some cost producing activities - Selling direct to consumers and bypassing activities and costs of distributors and dealers - Streamlining operations by eliminating low-value added or unnecessary work steps and activities - Reducing materials handling and shipping costs by having suppliers locate their plants or warehouses close to the company’s own facilities - When a low cost strategy works best: price competition among rival sellers is vigorous, the products of rival sellers are essentially identical and readily available from many eager sellers, there are few ways to achieve product differentiation in ways that have value to buyers, most buyers use the product in the same ways, buyers incur lower costs in switching their purchases from one seller to another, the majority of industry sales are made to a few large volume buyers, industry newcomers use introductory lower prices to attract buyers and build a customer base - Downfalls to low cost provider: aggressive price cutting that reduces profits instead of increases them, low cost provider strategies can easily be copied, becoming too fixated on cost reduction 2) Broad Differentiation Strategies - Done when buyer’s needs are too diverse to be fully satisfied by a standardized product offering - The essence of this strategy is to offer unique products that a wide range of buyers find appealing and worth paying for - Focus on uniqueness drivers, which are factors that are particularly effective in creating differentiation - Some common uniqueness drivers: creating superior product features/design/performance, improving customer service, pursing production R&D activities, striving for innovation, pursing continuous quality improvement, increasing emphasis on marketing and brand-building activities, seeking out high quality inputs, emphasizing human resource management - Reva
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