Business-Level Strategy - Business­Level Strategy...

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Unformatted text preview: Business­Level Strategy Business­Level Strategy Rod Thirion Business­Level Strategy Business­Level Strategy Action plan a firm develops to describe how it will compete in it chosen industry and/or market segment Business­Level Strategy Business­Level Strategy Business level strategies detail actions taken to provide value to customers and gain a competitive advantage by exploiting core competencies in specific markets. Should be concerned with a firm's position in an industry, relative to competitors and to the five forces of competition. Business­Level Strategy Business­Level Strategy Core competencies should focus on satisfying customer needs and/or preferences in order to achieve above average returns. Customers should be the foundation of a organization's business­level strategies. Who will be served What needs have to be met How those needs will be satisfied Five Business­Level Strategies Five Business­Level Strategies 1) 2) 3) 4) 5) Cost Leadership Differentiation Focused Cost Leadership Focused Differentiation Integrated Cost Leadership/Differentiation *Typically called the Five Generic Competitive Strategies Five Generic Competitive Strategies Source: Crafting and Executing Strategy 14th edition, Arthur A. Thompson, et all. McGraw­Hill Irwin, 2006. Cost Leadership Cost Leadership Use lower costs to under price competitors and attract price sensitive buyers in enough numbers to increase total profits… Or… Maintain present price, use lower­costs to earn higher profit margin on each sale, resulting in increased overall profits Successful Cost Leadership Successful Cost Leadership Strategy Low­cost leadership means lower overall costs, not just low manufacturing or production costs! Make achievement of meaningful lower costs than rivals the overall theme of business strategy Include features and services in product offering that buyers consider (or will consider) essential Achieve cost advantages in ways difficult for rivals to copy or match Controlling Cost Drivers Controlling Cost Drivers Capture economies of scale Focus on learning and experience curve effects Find sharing opportunities with other business units Outsourcing certain areas* Manage costs of resource inputs Assess first­mover advantages Control percentage of capacity utilization Value­Creating Activities Value­Creating Activities Make greater use of Internet technology Consider going directly to the end user Simplify product design process Offer a basic or no­frills product/service Bypass use of expensive raw materials Place facilities closer to suppliers & customers Drop something for everyone approach and focus on a limited product/service When Does a Low­Cost When Does a Low­Cost Strategy Work Best? Price competition is vigorous Product is standardized Monopolistic competition Buyers tend to use product in same way Buyers incur low switching costs Buyers have significant bargaining power Differentiation Strategy Differentiation Strategy Action plan developed to produce goods or services that customers perceive as being unique in ways that are important to them. Successful Differentiation Strategy Find ways to differentiate that create value for buyers and are not easily matched or copied by rivals Incorporate differentiating features that cause buyers to prefer your product or service over brands of rivals Not spending more to achieve differentiation than the price premium that can be charged Examples of Differentiation Examples of Differentiation Strategies Unique taste ­­ Dr. Pepper Multiple features ­­ Microsoft Windows and Office Wide selection and one­stop shopping ­­ Home Depot and Amazon.com Superior service ­­ FedEx, Ritz­Carlton Spare parts availability ­­ Caterpillar More for your money ­­ McDonald’s, Wal­Mart Prestige ­­ Rolex Quality manufacture ­­ Honda, Toyota Technological leadership ­­ 3M Corporation Top­of­line image ­­ Ralph Lauren, Chanel, Cross Source: Crafting and Executing Strategy 14th edition, Arthur A. Thompson, et all. McGraw­Hill Irwin, 2006. Focus Strategies Focus Strategies Action plan to produce goods or services to serve the needs and wants of a specific market segment TWO Types 1) Focused Cost Leadership Strategy 2) Focused Differentiation Strategy Focused Cost Leadership Strategy Focused Cost Leadership Strategy Developed to produce goods or services for a narrow segment at the lowest cost. Achieve lower costs than rivals in serving the segment. Examples Ikea & Hamburger Stand Focused Differentiation Strategy Focused Differentiation Strategy Plan to develop goods and services that a narrow group of customers perceive as being unique in ways that are important to them. Includes: Serving niche buyers better than rivals Choose a market where buyers have distinct preferences, unique needs or special requirements Develop unique capabilities to serve needs of target buyers Examples of Focus Differentiation Examples of Focus Differentiation Porsche Jiffy Lube International Pottery Barn Kids USAA Auto Insurance Credit Unions Big Dog Bookstore? Successful Focus Strategies Successful Focus Strategies Large enough market to be profitable and offers good growth potential Business is not crucial to success of industry leaders Difficult for multi­market segment competitors to meet specialized needs of niche members Have the resources and capabilities to effectively serve an attractive niche Few other rivals specializing in same niche Integrated Cost Integrated Cost Leadership/Differentiation Combine a strategic emphasis on low­cost with a strategic emphasis on differentiation Make an upscale product at a lower cost Give customers more value for their money Integrated Cost Integrated Cost Leadership/Differentiation Objectives Deliver superior value by Meeting or exceeding buyer expectations on product attributes Beating their price expectations Be the low cost provider of a product with good­to­excellent product attributes, then use cost advantage to under price comparable brands Business­Level Strategy Business­Level Strategy What Not to Do The big risk is selecting a stuck in the middle strategy. This strategy rarely, if ever creates sustainable competitive advantage. ...
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