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Strategy-The Quest To Keep Profit From Eroding

To keep profit from eroding, firms develop strategies to gain a sustainable competitive advantage. Firms have a competitive advantage when they can deliver the same benefits as competitors at a lower cost or superior benefits at a similar cost. Sources of advantage can be found at the industry level through factors like barriers to entry or at the firm level in resources that are valuable, rare, and difficult to imitate. Basic strategies for advantage include cost reduction, product differentiation, and reducing competitive intensity.

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93 views

Strategy-The Quest To Keep Profit From Eroding

To keep profit from eroding, firms develop strategies to gain a sustainable competitive advantage. Firms have a competitive advantage when they can deliver the same benefits as competitors at a lower cost or superior benefits at a similar cost. Sources of advantage can be found at the industry level through factors like barriers to entry or at the firm level in resources that are valuable, rare, and difficult to imitate. Basic strategies for advantage include cost reduction, product differentiation, and reducing competitive intensity.

Uploaded by

gregbaccay
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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STRATEGY – THE QUEST TO KEEP PROFIT FROM

ERODING
MANAGERIAL ECONOMICS -
MOTIVATION

What’s the key to the company’s success?


COMPETITIVE ADVANTAGE

 Succeeding in the face of competition requires that you first find a way to create an
advantage and then devise a means to protect that advantage.
STRATEGY IS SIMPLE

 To keep one step ahead of competitors or imitators and keep profit from eroding,
firms develop strategies to gain a sustainable competitive advantage.
 Firms have competitive advantage when: a) deliver the same product or service
benefits as their competitors but at a lower cost; b) deliver superior product or service
benefits at a similar cost
 Firms with a competitive advantage are able to earn positive economic profits.
ALLOCATION OF VALUE

CONSUME
R SURPLUS
Price per unit = P300
PROFIT
Customer Value = P400 (maximum Cost per unit = P200
Willingness to pay)

COST
SOURCES OF ECONOMIC PROFIT

 INDUSTRIAL ORGANIZATION (IO) ECONOMICS PERSPECTIVE – locates the source of advantage at the
industry level
 RESOURCE-BASED VIEW (RBV) – locates it at the individual firm level
IO VS RBV
PORTER’S 5 FORCES MODEL
RBV
3 BASIC STRATEGIES

 COST REDUCTION
 PRODUCT DIFFERENTATION
 REDUCTION IN COMPETITIVE INTENSITY
QUESTIONS

 Buyers have higher power when:


a) Firms sell a highly differentiated product
b) They are not a significant purchaser of the supplier’s output
c) Switching costs are low
d) The buyer industry is highly fragmented (buyers are not concentrated)
QUESTION

 If a firm successfully adopts a product differentiation strategy, what should happen to the elasticity of demand for
its product?
a) Increase
b) Decrease
c) Become unit elastic
d) Is unaffected
QUESTION

 When a resource or capability is valuable and rare, a firm may gain a:


a) Sustainable competitive advantage
b) Competitive parity
c) Cost advantage
d) Temporary competitive advantage
QUESTION

 Which of the following is critical for a firm adopting a cost-reduction strategy?

a) the firm must be the first to adopt the cost-reduction strategy


b) the strategy reduces costs by at least 10%
c) the strategy is focused on reducing internal production costs
d) the methods of achieving cost reductions are difficult to imitate

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