Pitfalls in Cost Leadership Strategies

Many firms do not  fully understand  the behavior of their costs from a strategic perspective and fail to exploit opportunities to improve their relative cost position.   Some of  the   most  common  errors  made by firms in assessing and acting upon cost position include: Exclusive Focus on the Cost o f Manufacturing Activities.    When one

Steps in strategic cost analysis in firm

The techniques described in this chapter can be summarized by outlining the steps required in strategic cost analysis: Identify the appropriate value chain and assign costs and assets to it. Diagnose the cost drivers of each value activity and   how they interact. Identify competitor value chains, and determine the relative cost of competitors and

Sources of differentiation Advantage of the firm

A firm differentiates itself from its competitors when it provides something   unique  that  is valuable   to   buyers  beyond  simply   offering a low price. Differentiation allows the firm to command  a premium price, to sell more of its product at a given price, or to gain equivalent benefits such as greater buyer loyalty during cyclical

The cost of differentiation infirm

Differentiation   is usually   costly.   A   firm   must  often   incur  costs to be unique because uniqueness requires that it perform value activities better than competitors. Providing superior applications engineering support usually requires additional  engineers, for example, while   a highly skilled sales force typically costs more than a less skilled one. Achieving greater product durability than

Buyer value and differentiation of the firm

Uniqueness does   not  lead   to   differentiation   unless   it   is valuable to the buyer.   A successful differentiator  finds ways of creating value for buyers that  yield a price   premium  in   excess of the extra  cost. The  starting point  for   understanding  what  is valuable   to   the   buyer is the   buyer’s   value   chain.   Buyers   have   value   chains  

Buyer Purchase Criteria for the firm

Applying these fundamentals of buyer value to a particular indus­ try results in the identification of buyer purchase criteria— specific attributes of a firm that create actual or perceived value for the buyer. Buyer purchase criteria can be divided into two types: Use criteria. Purchase criteria that stem from the way in which a

Differentiation strategy of the firm

Differentiation stems from uniquely  creating buyer  value. It can result through meeting use or signaling criteria, though in its most sustainable form it comes from both.  Sustainable   differentiation   re­ quires that a firm perform  a range  of value activities uniquely that impact those purchase criteria. Meeting some purchase criteria requires that a firm perform

Steps in differentiation of the firm

The concepts  in this chapter  can   be summarized  by   outlining the analytical steps necessary for determining  the bases for differentia­ tion and selecting a differentiation strategy. Determine who the real buyer is. The first step in differentiation analysis is to identify the real The firm, institution, or household is not the real buyer, but

Technology and competition

Any firm involves a large num ber  of technologies. Everything a firm does involves technology  of some  sort, despite the fact that  one or more technologies may appear to dominate the product or the production  process.   The  significance of  a technology  for competition is not a function of its scientific merit or its prominence

Technology strategy: The Choice of Technologies to Develop

At the core of a technology strategy is the type of competitive advantage a   firm   is trying   to   achieve.   The  technologies   that  should be developed are those that would most contribute to a firm’s generic strategy, balanced against the probability of success in developing them. Technology strategy  is a potentially  powerful   vehicle with   which

Technology strategy: Technological Leadership or Followership

The second broad  issue a firm must address in technology strategy is whether to seek technological leadership. The notion of technological leadership is relatively clear— a firm seeks to be the first to introduce technological changes   that  support   its   generic   strategy.   Sometimes all firms that are not leaders are viewed as technological  followers, including

Technology strategy: Licensing of Technology

The third broad  issue in technology strategy is technology licens­ ing, a form of coalition with other firms.6 Firms with a unique technol­ ogy are often asked for licenses, or are forced to license by government regulations. Licensing is also a way to gain access to technology. Where technology is an important source of

Technological evolution

Since technological change has such a powerful role in competi­ tion, forecasting the path  of technological evolution is extremely impor­ tant to allow a firm to anticipate technological changes and thereby improve   its   position.   Most  research  on   how   technology  evolves in an industry  has grown out of the product  life cycle concept. According to

Formulating technological strategy of the firm

The concepts in this chapter  suggest a number of analytical steps in formulating  technological strategy in order to turn  technology into a competitive weapon rather than a scientific curiosity. Identify all the distinct technologies and subtechnologies in the value chain. Every value activity   involves one or more  technologies. The starting point  in formulating  technological

The strategic benefits of competitors

The presence of the right competitors can yield a variety of strate­ gic benefits that fall into four general categories: increasing competitive advantage, improving current industry structure, aiding market devel­ opment, and deterring entry. The particular benefits achieved will differ by industry and the strategy a firm is pursuing. 1. Increasing Competitive  Advantage The

What makes a “good” competitor?

Competitors are not all equally attractive or unattractive. A good competitor is one that can perform the beneficial functions described above without representing too severe a long-term threat. A good competitor  is one that  challenges the firm   not  to be complacent  but is a competitor with which the firm can achieve a stable and

Influencing the pattern of competitors

The benefits of good competitors  suggest that it may be desirable for a firm to   attack  some   current  competitors  and   not  others,   and to encourage the entry of new   competitors  provided  they   meet the tests of a good competitor. Since it is usually desirable to have more competitors early in an industry’s development  than 

The optimal market configuration for the firm

The principles of competitor selection imply that  holding a 100 percent market share is rarely, if ever, optim al.12 It is sometimes more sensible for firms to yield position and  allow good competitors  to occupy it than  to maintain  or   increase   share.   While this   is contrary to managers’ beliefs in some firms and  almost 

Pitfalls in competitor selection

The  principles of competitor  selection are not  always followed. The following pitfalls seem to be among the most common: Failure to Distinguish Good and Bad Competitors.     Many compa­ nies do not recognize which of their  competitors are good competitors and which are not. This  leads them to pursue across-the-board moves, or worse yet, to

Bases for industry segmentation

An industry  is a market in which similar or closely related prod­ ucts are sold to buyers, as shown  schematically  in Figure  7 – 1.2 In some industries a single product variety is sold to all buyers. More typically, however, there are many existing or potential  items in an industry’s product line, distinguished by