MKT 449 Exam 2

Question Answer
Methods for measuring competitive advantage Accounting profitability, shareholder value creation, economic value creation, the balanced scorecard approach, the triple bottom line
Limitations of accounting profitability method Historical and backward-looking, does not consider off-balance sheet obligations, focused on tangible assets
Limitations of shareholder value Stock prices can be highly volatile, macroeconomic factors affect stock prices, stock price can reflect the mood of investors
Goals of differentiation Seek to create higher value than competitors, offer products or services with unique features, charge higher prices
Important activities for differentiators R&D resulting in unique product features, superior customer service, new product launches, marketing and promotions
Differentiation 5 forces Rivalry: customers are loyal of differentiated products, Buyers: inverse relationship between loyalty & price sensitivity, Suppliers: low, component costs may be passed on to customers, Entrants: substantial barriers, Substitutes: loyalty reduces threat
Risks of differentiation High price differential (may be too high compared to competition), Counterfeit goods (Rolex watches, etc)
Goals of cost leadership Seek to create similar value compared to competitors, deliver products/services at lower cost, charge lower prices
Important activities of cost leadership Reducing cost, reducing prices for customers
Risks of cost leadership Obsolescence, singular focus on cost reduction (possible perception of low quality)
Narrow Market examples Buyer groups (youth/seniors, company execs), Product line segments (professional painter groups), Geographic markets (West vs East coast, single city/local market)
Focused cost leadership goals Cater to a specific audience, economies of scale, low costs, low price
Focused differentiation goals Premium offerings to a specific audience
Risks of focus strategies Large players may find the niche attractive, competitors may out-focus the focuser, customer needs may regress toward mean
Integrated strategy goal Efficiently produce differentiated products
Risk of integrated strategy You may be stuck in the middles; may not create enough value to be viewed as differentiated, and costs may not be low enough
Corporate level strategy Actions a firm takes to gain a competitive advantage by selecting/managing different businesses in different markets
Main question of Corporate level strategy Where do we compete?
3 dimensions of corporate level strategy Industry value chain, products & services, geography (regional, national, or global markets)
Pros of vertical integration Secure critical supplies, access to exclusive distribution channels, higher quality, investments in specialized assets
Cons of vertical integration Higher costs, lower flexibility, legal (anti-trust) issues
Internal transaction costs Costs of making in-house; recruiting/retaining employees, setting up mfg facility, paying salaries & benefits, office space, etc.
External transaction costs Costs of buying value creating activities; searching for a firm to contract with, negotiating, monitoring, enforcing the contract
Levels of diversification Single-business and dominant business, related-constrained, related-linked, unrelated
Single diversification & dominant business firms Pros: become really good at what you do; Cons: exposed to systemic risk from general environmental & industrial forces, over-dependence on one or few revenue sources
Related-Constrained Shares tangible assets and capabilities–ex. an assembly line used to make cameras can also be used to can salsa
Related-Linked Shares critical intangible resources between BUs, transfer core competencies developed in 1 business to others
Unrelated Aka Conglomerates, lots of BUs and no ties between them; balanced portfolio; more prevalent in developing countries
Reasons for diversification Economies of scope, Gain market power
Vehicles for diversification Internal development (make; organic growth; new product development), Strategic alliances (joint ventures, equity, non-equity alliances), Mergers & Acquisitions
Reasons for M&As Expand: into new lines of business, customer base, and geographic reach, enhance IP/new technology, opportunistic
Merger Joining of 2 companies and integration of ops on a co-equal basis; results in a third business; true mergers are rare
Acquisition One firm buys controlling 100% interest in another, making it a subsidiary; friendly
(Hostile) Takeover A form of acquisition in which the acquiree doesn't want to be taken over; unfriendly, rare
Benefits of merging Reduction in competitive intensity, lower costs, increased differentiation
Reasons for acquisitions Increased market power, overcoming entry barriers, access to new capabilites, reduce cost & risk of new product development
Effective M&A characteristics the 2 firms have complementary resources, acquisition is friendly, acquirer does their research, acquirer has financial slack, acquirer has superior integration management capabilites
Challenges in acquistions integration difficulties (culture/org system differences), inadequate evaluation, inability to achieve synergy
Restructuring strategies of ineffective M&As Downsizing (reduction in employees/operating units, tactical) Downscoping (elimination of unrelated businesses, strategic)
Strategic Alliances Voluntary, temporary agreement between firms to share knowledge, resources, & capabilities to develop products & process
Value of strategic alliances Strengthen competitive position, enter new markets, hedge against uncertainty, access critical complementary assets, learn new capabilites
Types of alliances Non-equity alliances, Equity alliances, Joint venture
Globalization The increasing economic interdependence among countries and orgs as reflected in the flows of goods & services, financial capital, & knowledge
Reasons for increasing globalization Falling trade & investment barriers, advances in telecoms, reductions in transportation costs
Advantage of international business Access to new markets, access to low-cost inputs, develop new competencies
Disadvantages of international business

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