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Chapter 5 The Five Generic Competitive Strategies—Which One to Employ?
166
ASSURANCE OF LEARNING EXERCISES
1. BestBuyisthelargestconsumerelectronicsretailerintheUnitedStates,with2015salesofover$50billion.
The company competes aggressively on price with such rivals as Costco, Sam’s Club, Walmart, and Target,
butitisalsoknownbyconsumersforitsrst-ratecustomerservice.BestBuycustomershavecommented
thattheretailer’ssalesstaisexceptionallyknowledgeableaboutthecompany’sproductsandcandirect
themtotheexactlocationofdicult-to-nditems.BestBuycustomersalsoappreciatethatdemonstration
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.
HowwouldyoucharacterizeBestBuy’scompetitivestrategy?Shoulditbeclassiedasalow-costprovider
strategy?adierentiationstrategy?abest-coststrategy?Explainyouranswer.
Response:
Students are likely to conduct research regarding Best Buy (www.bestbuy.com) and may provide information
suchasthefollowing.BestBuyisaspecialtyretaileroeringawidevarietyofconsumerelectronics,home
oceproducts,entertainmentsoftware,appliancesandrelatedservices.
StudentsaremostlikelytoconcludeBestBuy’scompetitivestrategyshouldbeclassiedasadierentiation
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. IllustrationCapsule5.1discussesAmazon’slow-costpositionintheelectroniccommerceindustry.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 eciency
in logistics. These include 1) negotiating for space inside of supplier’s warehouses to reduce inventory
Chapter 5 The Five Generic Competitive Strategies—Which One to Employ?
167
3. USAAisaFortune500insuranceandnancialservicescompanywith2014annualsalesexceeding$24
billion.Thecompanywasfoundedin1922by25Armyocerswhodecidedtoinsureeachother’svehicles
andcontinuestolimititsmembershiptoactive-dutyandretiredmilitarymembers,ocercandidates,and
adult children and spouses of military-aliated USAA members. The company has received countless
awards, including being listed among Fortune’sWorld’sMostAdmiredCompaniesin2014and2015and
100BestCompaniestoWorkForin2010through2015.USAAwasalsorankedasthenumber-oneBank,
CreditCard,andInsuranceCompanybyForresterResearchfrom2013to2015.Youcanreadmoreabout
the company’s history and strategy at www.usaa.com.
HowwouldyoucharacterizeUSAA’scompetitivestrategy?Shoulditbeclassiedasalow-costprovider
strategy?Adierentiationstrategy?Abest-coststrategy?Also,hasthecompanychosentofocusonanarrow
piece of the market, or does it appear to pursue a broad market approach? Explain your answer.
Response:
ThestudentshouldidentifythatUSAAoersnancialproductsinfourspecicareasincludinginsurance,
banking,investments,andretirement.Further,thestudentshouldidentifythatUSAAoerstheirnancial
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
inwhichthecompanyseekstodierentiateitselffromrivalathleticapparelrms.Istherereasontobelieve
thatlululemon’sdierentiationstrategyhasbeensuccessfulinproducingacompetitiveadvantage?Whyor
why not?
ACTIVITY
This Assurance of Learning exercise is available as a Connect Assignment. The assignment can be
graded and posted automatically.
Response:
Thestudentshouldidentifythatthecompanydierentiatesitselffromotherathleticapparelrmsinseveral
ways to include:
Chapter 5 The Five Generic Competitive Strategies—Which One to Employ?
168
of 48 stores.
• IncreaseinRevenuefrom$1.59Bin2014to$1.79Bin2015
• IncreaseinGrossProtfrom$840Min2014to$914in2015
• DecreaseinIncomefromOperationsfrom$391Min2014to$376Min2015,largelydrivenbyan
increase in SG&A expenses.
