Chapter 5 The Five Generic Competitive Strategies—Which One to Employ?
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ASSURANCE OF LEARNING EXERCISES
1. BestBuyisthelargestconsumerelectronicsretailerintheUnitedStates,with2015salesofover$50billion.
The company competes aggressively on price with such rivals as Costco, Sam’s Club, Walmart, and Target,
butitisalsoknownbyconsumersforitsrst-ratecustomerservice.BestBuycustomershavecommented
thattheretailer’ssalesstaisexceptionallyknowledgeableaboutthecompany’sproductsandcandirect
themtotheexactlocationofdicult-to-nditems.BestBuycustomersalsoappreciatethatdemonstration
models of PC monitors, digital media players, and other electronics are fully powered and ready for in-store
use. Best Buy’s Geek Squad tech support and installation services are additional customer service features
that are valued by many customers.
HowwouldyoucharacterizeBestBuy’scompetitivestrategy?Shoulditbeclassiedasalow-costprovider
strategy?adierentiationstrategy?abest-coststrategy?Explainyouranswer.
Response:
Students are likely to conduct research regarding Best Buy (www.bestbuy.com) and may provide information
suchasthefollowing.BestBuyisaspecialtyretaileroeringawidevarietyofconsumerelectronics,home
oceproducts,entertainmentsoftware,appliancesandrelatedservices.
StudentsaremostlikelytoconcludeBestBuy’scompetitivestrategyshouldbeclassiedasadierentiation
strategy based on serving the unique needs of their customers. According to the Web site, the company states
its strategy is based on “customer centricity.” This strategic approach centers on “three core philosophies:
2. IllustrationCapsule5.1discussesAmazon’slow-costpositionintheelectroniccommerceindustry.Based
on information provided in the capsule, explain how Amazon has built its low-cost advantage in the industry
and why a low-cost provider strategy is well suited to the industry.
ACTIVITY
This Assurance of Learning exercise is available as a Connect Assignment. The assignment can be
graded and posted automatically.
Response:
One area the student might focus on is cost advantages through innovations in value chain logistics that
competitive advantage.Amazon has undertaken several innovative improvements to increase eciency
in logistics. These include 1) negotiating for space inside of supplier’s warehouses to reduce inventory
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3. USAAisaFortune500insuranceandnancialservicescompanywith2014annualsalesexceeding$24
billion.Thecompanywasfoundedin1922by25Armyocerswhodecidedtoinsureeachother’svehicles
andcontinuestolimititsmembershiptoactive-dutyandretiredmilitarymembers,ocercandidates,and
adult children and spouses of military-aliated USAA members. The company has received countless
awards, including being listed among Fortune’sWorld’sMostAdmiredCompaniesin2014and2015and
100BestCompaniestoWorkForin2010through2015.USAAwasalsorankedasthenumber-oneBank,
CreditCard,andInsuranceCompanybyForresterResearchfrom2013to2015.Youcanreadmoreabout
the company’s history and strategy at www.usaa.com.
HowwouldyoucharacterizeUSAA’scompetitivestrategy?Shoulditbeclassiedasalow-costprovider
strategy?Adierentiationstrategy?Abest-coststrategy?Also,hasthecompanychosentofocusonanarrow
piece of the market, or does it appear to pursue a broad market approach? Explain your answer.
Response:
ThestudentshouldidentifythatUSAAoersnancialproductsinfourspecicareasincludinginsurance,
banking,investments,andretirement.Further,thestudentshouldidentifythatUSAAoerstheirnancial
product mix to a narrow target group including active military members, retired military members, and
families of military members.
The student identify that USAA is employing a focused low-cost strategy and should be able to explain how
USAA’s strategy meets many of the criteria for a successful focused low-cost strategy:
4. Explore lululemon athletica’s website at info.lululemon.com and see if you can identify at least three ways
inwhichthecompanyseekstodierentiateitselffromrivalathleticapparelrms.Istherereasontobelieve
thatlululemon’sdierentiationstrategyhasbeensuccessfulinproducingacompetitiveadvantage?Whyor
why not?
ACTIVITY
This Assurance of Learning exercise is available as a Connect Assignment. The assignment can be
graded and posted automatically.
Response:
Thestudentshouldidentifythatthecompanydierentiatesitselffromotherathleticapparelrmsinseveral
ways to include:
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of 48 stores.
• IncreaseinRevenuefrom$1.59Bin2014to$1.79Bin2015
• IncreaseinGrossProtfrom$840Min2014to$914in2015
• DecreaseinIncomefromOperationsfrom$391Min2014to$376Min2015,largelydrivenbyan
increase in SG&A expenses.