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Competing For Advantage. Part III – Creating Competitive Advantage Chapter 5 – Business-Level Strategy. Business-Level Strategy. Key Terms - PowerPoint PPT Presentation
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Competing For Advantage
Part III – Creating Competitive AdvantageChapter 5 – Business-Level Strategy
Business-Level Strategy
Key TermsBusiness-Level Strategy – integrated
and coordinated set of commitments and actions the firm uses to gain a competitive advantage by exploiting core competencies in specific product markets
–
Types of Business-Level Strategy
Features of the Five Business-Level Strategies
Generic, can be used across industries Two distinct types of competitive
advantage: Low Cost Differentiation
Choice of scope: Broad Narrow (niche)
Cost Leadership Strategy
Key TermsCost Leadership Strategy – integrated
set of actions designed to produce or deliver goods or services with features that are acceptable to customers at the lowest cost, relative to competitors
Cost Leadership Strategy – Implementation
No-frill, standardized goodsContinuously reduce costs of
value chain activities
Value-Creating Activities Associated with Cost Leadership Strategy
Cost Leadership Strategy and the Five Forces of Competition
Low-cost position is a valuable defense against rivals Powerful customers can demand reduced prices Costs leaders are in a position to absorb supplier
price increases and relationship demands, and to force suppliers to hold down their prices
Continuously improving levels of efficiency and cost reduction can be difficult to replicate and serve as significant entry barriers to potential competitors
Cost leaders hold an attractive position in terms of product substitutes, with the flexibility to lower prices to retain customers
How can Low Costs protect against…?
Low cost leadership does not eliminate any of these forces, it just allows the low costs firm to more easily deal with these forces, or offset the power of these forces, and potentially, remain profitable.
Strategy and Organizational Structure
Specialization CentralizationFormalization
Cost Leadership Strategy and Structure
Simple reporting relationships Few decision-making and authority layers Centralized corporate staff Strong operational focus on process
improvements Low-cost culture Centralized staff decision-making authority Jobs specialization Highly formalized rules and procedures
Risks of Cost Leadership Strategy
Processes can become obsoleteFocus on cost reductions can come at
the expense of understanding customer perceptions and needs
Strategy could be imitated, requiring the firm to increase the value offered to retain customers
Differentiation Strategy
Key TermsDifferentiation Strategy – integrated
set of actions designed by a firm to produce or deliver goods or services at an acceptable cost that customers perceive as being different in ways that are important to them
Differentiation Offer attributes that customers want, and are willing
to pay for. Leads to premium price, higher volume, loyalty
Marginal revenue must exceed the costs of differentiation
PERCEIVED VALUE versus
INCREMENTAL COSTS
Differentiation Strategy – Implementation (cont.)
Unusual features Responsive
customer service Rapid product
innovations Technological
leadership
Perceived prestige and status
Different tastes Engineering design Performance
Differentiation (cont.)
What firms pursue differentiation? How or on what basis do they achieve differentiation?
Value-Creating Activities Associated with the Differentiation Strategy
Differentiation Strategy and Structure
Complex and flexible reporting relationships
Cross-functional product development teams
Strong focus on marketing and product R&D
Development-oriented culture Decentralized decision making Broad job descriptions Informal rules and procedures
Risks of Differentiation Strategy
quick imitation no value in uniqueness over differentiation
cell phones premium price or costs are costs too high poorly understood/changing customer needs
Minivan, FAO Schwartz costs/price become more important than
uniqueness unwillingness to offer true differentiation
Differentiation Strategy and the Five Forces of Competition Customer loyalty provides the most valuable
defense against rivals Uniqueness products reduce customer
sensitivity to raised prices High margins (for differentiated products)
insulate from supplier influence Customer loyalty and product uniqueness serve
as significant entry barriers Firms with customers loyal to their products are
positioned effectively against product substitutes
How can Differentiation protect against…?
Differentiation does not eliminate any of these forces, it just allows the differentiated firm to more easily deal with these forces, or offset the power of these forces, and potentially, remain profitable.
Focus Strategy
Key TermsFocus Strategy – integrated set of
actions designed to produce or deliver goods or services to a narrow target consumer based on specific differences in the market
Focus Strategy – Market Segments
Buyer groupProduct line segmentGeographic market
Focus Strategy – Reasons
Large firms may overlook small niches Firms may lack resources to compete in
the broader market Firms may be able to serve a narrow
market segment more effectively than larger, industry-wide competitors
Firms may direct resources to certain value chain activities to build competitive advantage
Focus Strategy – Types
Focused cost leadership strategyFocused differentiation strategy
Risks of Differentiation Strategy A competitor may be able to focus on a more
narrowly defined competitive segment and "outfocus” the focuser
A company competing on an industry-wide basis may decide that the market segment served by the focus strategy firm is attractive and worthy of competitive pursuit
The needs of customers within a narrow competitive segment may become more similar to those of industry-wide customers as a whole
Integrated Cost Leadership/Differentiation Strategy
Key Terms Integrated Cost Leadership/
Differentiation Strategy – integrated set of actions designed by a firm to produce or deliver goods or services at an acceptable cost that customers perceive as being different in ways that are important to them
Risks of Integrated Strategy
Failure to establish a leadership position can result in a firm being "stuck in the middle," unable to create value, and unable to earn above-average returns