1. Indicate whether each statement below is true or false, and briefly justify your answer.
a) Boeing Company can increase the threat from supplier power if it vertically integrates with aircraft parts suppliers for its construction of Boeing 787 Dreamliner.
True – Vertical integration is desirable when one firm’s investment in relationship specific assets has a significantly greater impact on the value created in the vertical chain than does the other firm’s investment. The threat of forward integration by suppliers, if credible, can enhance supplier power because either buyer’s are forced to accept the high input or risk direct competition from suppliers (Besanko, Dranove, Shanley, & Schaefer, 2013).
b) Value creation by a firm is all about enhancing benefits to its customers even if it may cost higher to do it.
False – Value is created when a producer combines inputs and purchased components to make a product whose perceived benefit exceeds the cost incurred in making the product. Therefore, the value created is the difference between the perceived benefit and cost, and is expressed as per unit of the final product (Besanko, Dranove, Shanley, & Schaefer, 2013).
c) If you manufacture a search good, you should position yourself as a cost leader to sustain competitive advantage.
True – A search good is one whose objective quality attributes the typical buy can assess prior to the point of purchase. The potential for differentiation lies largely in enhancing the products observable features. But if buyers can discern among different offerings, so can competitors, which raises risk that the enhancements will be imitated (Besanko, Dranove, Shanley, & Schaefer, 2013).
d) When Countdown provides specific discounts to Onecard customers in their supermarkets, they are using switching costs as an isolating mechanism to sustain their competitive advantage.
True – Buyers will end up incurring significant switching costs if they change to another supplier. The Onecard is a loyalty program that offers customer’s points, discounts and rewards and they will face switching costs if they chose to shop at another grocery store.
2. Referring to the Wal-Mart case study provided, answer the following questions:
a) Wal-Mart’s success rested upon its ability to offer its customers “Always low prices always”. How does such a strategy help it to sustain competitive advantage in the industry?
Wal-Mart is a cost leader. They have adopted this generic strategy to offer their competitors low prices in order to sustain competitive advantage in the industry. Wal-Mart has a cost advantage over its competitors, because they are able to create more benefit than their competitors by offering products at a lower cost and sell more. They can achieve benefit parity, which means that they are able to offer a benefit that is not much less than its competitors, or benefit proximity by offering a slightly lower benefit (Besanko, Dranove, Shanley, &...