Business Level Strategy Final

8/4/2019 Business Level Strategy Final

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STRATEGYATTHEBUSINESS LEVEL


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BUSINESS-LEVEL STRATEGY (DEFINED)

An integrated and coordinated set of commitments andactions the firm uses to gain a competitive advantage byexploiting core competencies in specific product markets.


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CORE COMPETENCIESAND STRATEGY

Resources and superior capabilities that aresources of competitive advantage over afirms rivals

Providing value to customers and gainingcompetitive advantage by exploiting corecompetencies in individual product markets

CoreCompetencies

Strategy

Business-levelStrategy

An integrated and coordinated set ofactions taken to exploit core competenciesand gain competitive advantage


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CUSTOMERS: THEIR RELATIONSHIPTO BUSINESS-LEVEL STRATEGIES

Key Issues

inBusiness-level

Strategy

Who will beserved?

What needs willbe satisfied?

How will thoseneeds be satisfied?


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EFFECTIVELY MANAGING RELATIONSHIPSWITHCUSTOMERS

Firms must manage all aspects of their relationshipwith customers.

Reach: firms success and connection to customers

Richness: depth and detail of two-way flow ofinformation between the firm and the customer

Affiliation: facilitation of useful interactions withcustomers


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WHO: DETERMININGTHE CUSTOMERSTOSERVE

Market segmentation A process used to cluster people with similar needs into

individual and identifiable groups.

All Customers

Industrial

MarketsConsumerMarkets


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MARKET SEGMENTATION

Consumer Markets

Demographic factors

Socioeconomic factors

Geographic factors

Psychological factors

Consumption patterns

Perceptual factors

Industrial Markets

End-use segments

Product segments

Geographic segments

Common buying factorsegments

Customer size

segments


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TABLE4.1 BASISFOR CUSTOMER SEGMENTATION

Consumer Markets

Demographic factors (age, income, sex, etc.) Socioeconomic factors (social class, stage in the family life cycle)

Geographic factors (cultural, regional, and national differences)

Psychological factors (lifestyle, personality traits)

Consumption patterns (heavy, moderate, and light users)

Perceptual factors (benefit segmentation, perceptual mapping)

Industrial Markets

End-use segments (identified by SIC code)

Product segments (based on technological differences orproduction economics)

Geographic segments (defined by boundaries between countries orby regional differences within them)

Common buying factor segments (cut across product market andgeographic segments)

Customer size segmentsSource: Adapted from S. C. Jain, 2000, Marketing Planning and

Strategy, Cincinnati: South-Western College Publishing, 120.


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WHAT: DETERMINING WHICH CUSTOMERNEEDSTO SATISFY

Customer needs are related to a products benefits and

features.

Customer needs are neither right nor wrong, good nor

bad. Customer needs represent desires in terms of features

and performance capabilities.


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HOW: DETERMINING CORE COMPETENCIES NECESSARYTO SATISFY CUSTOMER NEEDS

Firms use core competencies to implement valuecreating strategies that satisfy customers needs.

Only firms with capacity to continuously improve,innovate and upgradetheir competencies can expect tomeet and/or exceed customer expectations across time.


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THE PURPOSEOFA BUSINESS-LEVELSTRATEGY

Business-Level Strategies

Are intended to create differences between the firms

position relative to those of its rivals.

To position itself, the firm must decide whether itintends to:

Perform activities differently or

Perform different activities as compared to its rivals.


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TYPESOF POTENTIAL COMPETITIVEADVANTAGE

Achieving lower overall costs than rivals

Performing activities differently (reducing process costs)

Possessing the capability to differentiate the firms

product or service and command a premium price

Performing different (more highly valued) activities.


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COMPETITIVE SCOPE

Broad Scope The firm competes in many

customer segments.

Narrow Scope

The firm selects a segment or groupof segments in the industry andtailors its strategy to serving them atthe exclusion of others.


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TYPESOF BUSINESS-LEVEL STRATEGIES

Cost Uniqueness

DifferentiationCost Leadership

FocusedDifferentiation

Focused CostLeadership

Integrated CostLeadership/

Differentiation

BroadTarget

NarrowTarget

Competitive Advantage

CompetitiveScope


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FIGURE4.2 FIVE BUSINESS-LEVEL STRATEGIES

Source: Adapted with thepermission of The Free Press, animprint of Simon & Schuster AdultPublishing Group, from CompetitiveAdvantage: Creating and SustainingSuperior Performance, by Michael E.Porter, 12. Copyright 1985, 1998by Michael E. Porter.


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COST LEADERSHIP STRATEGY

An integrated set of actions taken to produce goodsor services with features that are acceptable tocustomers at the lowest cost, relative to that ofcompetitors with features that are acceptable to

customers.

Relatively standardized products

Features acceptable to many customers

Lowest competitive price


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COST LEADERSHIP STRATEGY

Cost saving actions required by this strategy:

Building efficient scale facilities

Tightly controlling production costs and overhead

Minimizing costs of sales, R&D and service

Building efficient manufacturing facilities

Monitoring costs of activities provided by outsiders

Simplifying production processes


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HOWTO OBTAINA COST ADVANTAGE

Determineand controlCost Drivers

ReconfigureValue Chainif needed

Alter production process

Change in automation

New distribution channel New advertising media

Direct sales in place ofindirect sales

New raw material

Forward integration

Backward integration Change location relative

to suppliers or buyers


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FIGURE4.3 EXAMPLESOF VALUE-CREATING ACTIVITIES ASSOCIATEDWITHTHE COST LEADERSHIP STRATEGY

SOURCE: Adapted with the permissionof The Free Press, an imprint of Simon &Schuster Adult Publishing Group, fromCompetitive Advantage: Creating andSustaining Superior Performance, byMichael E. Porter, 47. Copyright 1985,

1998 by Michael E. Porter.


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VALUE-CREATING ACTIVITIESFOR COSTLEADERSHIP

Cost-effective MIS

Few management layers

Simplified planning

Consistent policies

Effecting training

Easy-to-use manufacturingtechnologies

Investments in technologies

Finding low cost raw materials

Monitor suppliersperformances

Link suppliers products toproduction processes

Economies of scale Efficient-scale facilities

Effective delivery schedules

Low-cost transportation

Highly trained sales force

Proper pricing


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COST LEADERSHIP STRATEGY: COMPETITORS

Due to cost leadersadvantageous position:

Rivals hesitate to compete onbasis of price.

Lack of price competition leadsto greater profits.

Threat ofnew

entrants

Bargainingpower ofsuppliers

Rivalryamong

competingfirms

Bargainingpower ofbuyers

Threat ofsubstituteproducts

Rivalry withExisting Competitors


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COST LEADERSHIP STRATEGY: BUYERS

Can mitigate buyers powerby:

Driving prices far belowcompetitors, causing them to

exit, thus shifting power withbuyers back to the firm.

Threat ofnew

entrants


Rivalryamong

competingfirms



Bargaining Powerof Buyers


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COST LEADERSHIP STRATEGY: SUPPLIERS

Can mitigate supplierspower by:

Being able to absorb costincreases due to low cost

position.

Being able to make verylarge purchases, reducingchance of supplier usingpower.

Threat ofnew

entrants


Rivalryamong

competingfirms



Bargaining Powerof Suppliers


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COST LEADERSHIP STRATEGY: NEWENTRANTS

Can frighten off newentrants due to:

Their need to enter on a largescale in order to be cost

competitive.

The time it takes to movedown the learning curve.

Threat ofnew

entrants


Rivalryamong

competingfirms



The Threat ofPotential Entrants


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COST LEADERSHIP STRATEGY: SUBSTITUTES

Cost leader is wellpositioned to:

Make investments to be first tocreate substitutes.

Buy patents developed bypotential substitutes.

Lower prices in order tomaintain value position.

Threat ofnew

entrants


Rivalryamong

competingfirms



ProductSubstitutes


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COST LEADERSHIP STRATEGY (CONTD)

Competitive Risks

Processes used to produce and distribute good orservice may become obsolete due to competitors

innovations.

Focus on cost reductions may occur at expense ofcustomers perceptions of differentiation

Competitors, using their own core competencies, maysuccessfully imitate the cost leaders strategy.


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DIFFERENTIATION STRATEGY

An integrated set of actions taken to producegoods or services (at an acceptable cost) thatcustomers perceive as being different in ways thatare important to them.

Focus is on nonstandardized products

Appropriate when customers value differentiatedfeatures more than they value low cost.


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HOWTO OBTAINA DIFFERENTIATIONADVANTAGE

ControlCost Drivers

if needed

ReconfigureValue Chaintomaximize

Lower buyers costs

Raise performance of product or service

Create sustainability through:

Customer perceptions of uniqueness

Customer reluctance to switch to non-unique product or service


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FIGURE4.4 EXAMPLESOF VALUE-CREATING ACTIVITIES ASSOCIATEDWITHTHE DIFFERENTIATION STRATEGY

SOURCE: Adapted with the permissionof The Free Press, an imprint of Simon &Schuster Adult Publishing Group, fromCompetitive Advantage: Creating andSustaining Superior Performance, byMichael E. Porter, 47. Copyright 1985,

1998 by Michael E. Porter.


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VALUE-CREATING ACTIVITIESANDDIFFERENTIATION Highly developed MIS

Emphasis on quality

Worker compensation forcreativity/productivity

Use of subjective performance

measures

Basic research capability

Technology

High quality raw materials

Delivery of products

High quality replacement parts

Superior handling of incomingraw materials

Attractive products

Rapid response to customer

specifications

Order-processing procedures

Customer credit

Personal relationships


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DIFFERENTIATION STRATEGY: COMPETITORS

Defends againstcompetitors because brandloyalty to differentiatedproduct offsets price

competition.

Threat ofnew

entrants


Rivalryamong

competingfirms

Bargaining

power ofbuyers

Threat of

substituteproducts

Rivalry withCompetitors


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DIFFERENTIATION STRATEGY: BUYERS

Can mitigate buyers powerbecause well differentiatedproducts reduce customersensitivity to price increases.Threat of

new

entrants


Rivalryamong

competingfirms

Bargaining

power ofbuyers

Threat of

substituteproducts

Bargaining Powerof Buyers


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DIFFERENTIATION STRATEGY: SUPPLIERS

Can mitigate supplierspower by:

Absorbing price increasesdue to higher margins.

Passing along highersupplier prices becausebuyers are loyal todifferentiated brand.

Threat ofnew

entrants


Rivalryamong

competingfirms

Bargaining

power ofbuyers

Threat of

substituteproducts

Bargaining Powerof Suppliers


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DIFFERENTIATION STRATEGY: NEWENTRANTS

Can defend against newentrants because:

New products must surpassproven products.

New products must be at leastequal to performance of provenproducts, but offered at lowerprices.

Threat ofnew

entrants


Rivalryamong

competingfirms

Bargaining

power ofbuyers

Threat of

substituteproducts

The Threat ofPotential Entrants


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DIFFERENTIATION STRATEGY: SUBSTITUTES

Well positioned relative tosubstitutes because:

Brand loyalty to adifferentiated product tendsto reduce customers testingof new products or switchingbrands.

Threat ofnew

entrants


Rivalryamong

competingfirms

Bargaining

power ofbuyers

Threat of

substituteproducts

ProductSubstitutes


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COMPETITIVE RISKSOF DIFFERENTIATION

The price differential between the differentiatorsproduct and the cost leaders product becomes too

large.

Differentiation ceases to provide value for whichcustomers are willing to pay.

Experience narrows customers perceptions of the

value of differentiated features.

Counterfeit goods replicate differentiated featuresof the firms products.


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FOCUS STRATEGIES

An integrated set of actions taken to produce goodsor services that serve the needs of a particularcompetitive segment.

Particular buyer groupyouths or senior citizens

Different segment of a product lineprofessionalcraftsmen versus do-it-yourselfers

Different geographic marketsEast coast versus West

coast


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FOCUS STRATEGIES (CONTD)

Types of focused strategies

Focused cost leadership strategy

Focused differentiation strategy

To implement a focus strategy, firms must be ableto:

Complete various primary and support activities in acompetitively superior manner, in order to develop andsustain a competitive advantage and earn above-

average returns.


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FACTORS THAT DRIVE FOCUSED STRATEGIES

Large firms may overlook small niches.

A firm may lack the resources needed to competein the broader market.

A firm is able to serve a narrow market segmentmore effectively than can its larger industry-widecompetitors.

Focusing allows the firm to direct its resources to

certain value chain activities to build competitiveadvantage.


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COMPETITIVE RISKSOF FOCUS STRATEGIES

A focusing firm may be outfocused by its

competitors.

A large competitor may set its sights on a firms

niche market. Customer preferences in niche market may change

to more closely resemble those of the broadermarket.


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INTEGRATED COST LEADERSHIP/DIFFERENTIATION STRATEGY

A firm that successfully uses an integrated costleadership/differentiation strategy should be in a betterposition to:

Adapt quickly to environmental changes. Learn new skills and technologies more quickly.

Effectively leverage its core competencies while competingagainst its rivals.


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INTEGRATED COST LEADERSHIP/DIFFERENTIATION STRATEGY (CONTD)

Commitment to strategic flexibility is necessary forimplementation of integrated costleadership/differentiation strategy.

Flexible manufacturing systems (FMS) Information networks

Total quality management (TQM) systems


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FLEXIBLE MANUFACTURING SYSTEMS

Computer-controlled processes used to produce avariety of products in moderate, flexible quantitieswith a minimum of manual intervention.

Goal is to eliminate the low-cost-versus-wide product-

variety tradeoff.

Allows firms to produce large variety of products atrelatively low costs.


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INFORMATION NETWORKS

Link companies electronically with their suppliers,distributors, and customers.

Facilitate efforts to satisfy customer expectations interms of product quality and delivery speed.

Improve flow of work among employees in the firm andtheir counterparts at suppliers and distributors.

Customer relationship management (CRM)


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TOTAL QUALITY MANAGEMENT (TQM)SYSTEMS

Emphasize total commitment to the customerthrough continuous improvement using:

Data-driven, problem-solving approaches

Empowerment of employee groups and teams

Benefits

Increased customer satisfaction

Lower costs

Reduced time-to-market for innovative products


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RISKSOFTHE INTEGRATED COST LEADERSHIP/DIFFERENTIATION STRATEGY

Often involves compromises

Becoming neither the lowest cost nor the most differentiatedfirm.

Becoming stuck in the middle

Lacking the strong commitment and expertise thataccompanies firms following either a cost leadership or adifferentiated strategy.

Documents

Business Level Strategy Final