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What are Porter's Five Forces that negatively impact the profitability of the firm +
- Barriers to entry where fewer barriers=more competitors=less profitability
- Market competitiveness (ability to respond to change, advertise, invest in R&D, form alliances) thus if your competitors can do these things and you can't, your competitiveness and profits decrease
- Existence of substitute products with low switching costs
- Bargaining power of customers (they aren't loyal to a product & they're knowledgable, or the customer is huge and can command price concessions)
- Bargaining power of the suppliers (few suppliers, or a few good quality suppliers)
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When should the Cost Leadership strategy be used? How would a company achieve a competitive advantage?
- When customers have bargaining power, lots of options (lots of competitors or substitute products), and they are willing and able to switch products.
- Advantage: beat the price offered by competitors to build market share; meet the price of competitors but have lower costs.
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When should a Differentiation strategy be used? How does a company achieve a competitive advantage?
- When customers see a value in a product; it appeals to different people for different reasons
- Advantage: sell a better product so that your customers think they're getting a better value and thus be willing to pay more; or increase volume purchased
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When should the Best Cost strategy be used?
When generic products are not acceptable, but customers are only willing to pay a little more for the value. A little too high a price and the customer will switch to another product.
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When should a Focus/Niche strategy be used?
When a specialized product or service is needed and the customer is willing to pay the appropriate premium for the specialized item.
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What is the general purpose of the Value Chain Analysis? What could happen should a Value Chain Analysis not be performed?
- To determine which activities within an entity are either important to the customer, or to the firm.
- If important determine a means of reducing cost and increasing performance in that activity.
- If not important - consider outsourcing.
- If you don't do it, your competitor could and would then have a competitive advantage.
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What are the 4 major factors that impact global competitive advantage
- Factors of production (access to land, labor, capital)
- Domestic demand (if the locals want it, you have a better chance to compete)
- Related and supporting industries (the more rivals that exist domestically, the more opportunity to take over the international markets)
- Firm strategy, structure, and rivalry (government regulation can make or break advantage)
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Value chain analysis starts where and ends where? What is this process called?
- Vertical Linkage
- Starts with the suppliers and should be reviewed all the way through to the process of the customer discarding or recycling the product
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What are 6 factors that cause competition to become stronger and thus impact the profitability of your firm
- The market is not growing fast (no new buyers)
- There are several equal-sized firms in the market
- Customers do not have strong brand preferences
- The costs of exiting the market exceed the costs of continuing to operate
- Some firms profit from making certain moves to increase market share
- The various firms in the market use different types of strategic plans
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What is internal costs analysis?
Analyzing the internal value-creating ability of a firm including the sources of profit, and costs, of the internal activities.
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