Lecture - 4 Sm

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Business Level

StrategyIjaz Ahmed

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StrategyConcerned with making choices among two or more

alternatives

The choices are infuenced by opportunities and threats

nature and quality o the resources! capabilities! and corecompetencies

Strategies are purposeul! precede the taking o actions to which they apply!

demonstrate a shared understanding o the "rm#s vision andmission$

Acer#s decisions to acquire %ateway and &ackard 'ell werequite purposeul$ Acquiring %ateway helped the "rm establish a better oothold in

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Business-Level Strategy(Defned)

An integrated and coordinated set ocommitments and actions the "rm uses to

gain a competitive advantage by e*ploitingcore competencies in specifc productmarkets$

Core strategy! )very "rm has one! how it

intends to compete

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Reach, Richness,Aliation

,each The reach dimension o relationships with customers is

concerned with the frm!s access and connection to

customers

,ichness,ichness! the second dimension o "rms# relationships

with customers! is concerned with the depth and detailo" the t#o-#ay $o# o" in"ormation between the "rmand the customer$

A-liationthe third dimension! is concerned with "acilitating

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u &Relationship to Business-Level Strategies

ey ssuesin

Business-levelStrategy

*ho #ill +eserved

*hat needs #ill+e satisfed

o# #ill thoseneeds +e satisfed

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*ho& Determining the%ustomers to Serve

.arket segmentationA process used to cluster people with similar

needs into individual and identi"able groups$

All %ustomers

ndustrial.arkets

%onsumer.arkets

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.arket Segmentation

Consumer .arkets

+emographic actorsSocioeconomic

actors

%eographic actors

&sychological actors

Consumptionpatterns

&erceptual actors

Industrial .arkets

)nd/use segments

&roduct segments

%eographic segments

Common buyingactor segments

Customer sizesegments

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%onsumer .arkets

• Demographic "actors (age, income, se/, etc0)

•Socioeconomic "actors (social class, stage in the"amily li"e cycle)

• 1eographic "actors (cultural, regional, andnational di2erences)

• 3sychological "actors (li"estyle, personality traits)

• %onsumption patterns (heavy, moderate, and lightusers)

• 3erceptual "actors (consumer perceptions

.arket Segmentation

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ndustrial .arkets• 4nd use segment (Standardi5ed ndustrial

%lassifcation %ode) (igh speed and lo# speedmotors)

• 1eographic segments (defned +y +oundaries+et#een countries or +y regional di2erences#ithin them)

• %ommon +uying "actor segments• 0ive actors are typically ound to be important in

most industrial buying situations1 productperormance! product quality! service! delivery!and price$

•

.arket Segmentation

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& *hich %ustomer6eeds to Satis"y

Customer needs are related to a product#sbene"ts and eatures$

Customer needs are neither right nor wrong!good nor bad$

Customer needs represent desires in terms o

eatures and perormance capabilities$

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o#& Determining %ore%ompetencies 6ecessary

to Satis"y %ustomer6eeds

0irms use core competencies to implement

value creating strategies that satisycustomers# needs$

3nly "rms with capacity to continuouslyimprove, innovate and upgrade theircompetencies can e*pect to meet and4ore*ceed customer e*pectations across time$

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'he 3urpose o" a Business-

Level Strategy'usiness/5evel Strategies

Are intended to create di2erences between

the "rm#s position relative to those o its rivals$

To position itsel! the "rm must decidewhether it intends to1

&erorm activities di6erently or

&erorm di6erent activities as compared torivals$

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'ypes o" 3otential

%ompetitive AdvantageAchieving lower overall costs than rivals

&erorming activities di6erently 7reducing

process costs8

&ossessing the capability to di6erentiate the"rm#s product or service and command a

premium price&erorming di6erent 7more highly valued8

activities$

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'ypes o" Business-LevelStrategies

%ost 7ni8ueness

Di2erentiation%ost Leadership

9ocusedDi2erentiation

9ocused %ostLeadership

ntegrated %ostLeadership:

Di2erentiation

Broad'arget

6arro#'arget

%ompetitive Advantage

%ompetitiveScope

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0irms serving a broad target market seek touse their competitive advantage on anindustry/wide basis$

A narrow competitive scope means that the"rm intends to serve the needs o a narrowtarget customer group$

9ith ocus strategies! the "rm :selects asegment or group o segments in the industryand tailors its strategy to serving them to thee*clusion o others$;

'uyers with special needs and buyers located in

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%ost Leadership Strategy

An integrated set o actions taken to producegoods or services with eatures that areacceptable to customers at the lowest cost!relative to that o competitors

,elatively standardized products

0eatures acceptable to many customers

5owest competitive price

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&rocess innovationsnewly designed production and distribution methods

and techniques that allow the "rm to operate moree-ciently! are critical to successul use o the costleadership strategy

Cost leaders# goods and services must havecompetitive levels o di6erentiation that createvalue or customers while maintaining low cost

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,esearch suggests that having a competitiveadvantage in terms o logistics creates morevalue when using the cost leadership strategythan when using the di6erentiation strategy$

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'ig 5ots#s

Sell name/brand products at prices that are=> to ?> percent below those o discountretailers and roughly @> percent below thoseo traditional retailers$

'ig 5ots#s buyers search or manu"actureroverruns and discontinued styles to "ndgoods priced well below wholesale prices$

Buys "rom overseas suppliers$

'ig 5ots satis"es the customers# need toaccess the di6erentiated eatures o brand/

name products! but at a raction o their initial

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Cost saving actions required by this strategy1

'uilding e-cient scale acilities

Tightly controlling production costs andoverhead

.inimizing costs o sales! ,+ and service

'uilding e-cient manuacturing acilities

.onitoring costs o activities provided byoutsiders

Simpliying production processes

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o# to ;+tain a %ostAdvantage

Determineand control

%ostDrivers

Reconfgure

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0 )*amples o Balue/Creating ActivitiesAssociated with the Cost 5eadership Strategy

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%ost Leadership Strategy&%ompetitors

+ue to cost leader#sadvantageous position1

,ivals hesitate tocompete on basis oprice$

5ack o price competitionleads to greater pro"ts$

'hreat o"ne#

entrants

Bargaining po#er

o"suppliers

Rivalryamong

competingfrms

Bargainingpo#er o"+uyers

'hreat o"su+stituteproducts

Rivalry #ith4/isting

%ompetitors

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%ost Leadership Strategy&Buyers

Can mitigate buyers#power by1+riving prices ar

below competitors!

causing them to e*it!thus shiting powerwith buyers back tothe "rm$

'hreat o"ne#

entrants

Bargaining po#er

o"suppliers

Rivalryamong

competingfrms



Bargaining 3o#ero" Buyers

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%ost Leadership Strategy&Suppliers

Can mitigatesuppliers# power by1

'eing able to absorbcost increases due tolow cost position$

'eing able to makevery large purchases!reducing chance osupplier using power$

'hreat o"ne#

entrants

Bargaining po#er

o"suppliers

Rivalryamong

competingfrms



Bargaining 3o#ero" Suppliers

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%ost Leadership Strategy&6e# 4ntrantsCan righten o6 new

entrants due to1 Their need to enter on

a large scale in order tobe cost competitive$

The time it takes tomove down thelearning curve$

)-ciency

'hreat o"ne#

entrants

Bargaining po#er

o"suppliers

Rivalryamong

competingfrms



'he 'hreat o"3otential 4ntrants

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%ost Leadership Strategy&Su+stitutes

Cost leader is wellpositioned to1

.ake investments to be"rst to create

substitutes$'uy patents developed

by potential substitutes$

5ower prices in order to

maintain value position$

.ore customers

'hreat o"ne#

entrants

Bargaining po#er

o"suppliers

Rivalryamong

competingfrms



3roductSu+stitutes


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%ost Leadership Strategy(cont!d)

Competitive ,isks&rocesses used to produce and distribute good

or service may become obsolete due tocompetitors# innovations$

Too much ocus by the cost leader on costreductions may occur at the e*pense o tryingto understand customers# perceptions o:competitive levels o di6erentiation$;

9al/.art! or e*ample! has been criticized or having too ewsalespeople available to help customers and too ew individuals atcheckout registers$ These complaints suggest that there might be adiscrepancy between how 9al/.art#s customers de"ne :minimallevels o service; and the "rm#s attempts to drive its costs lower andlower$

Competitors! using their own core

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Di2erentiation Strategy

An integrated set o actions taken to producegoods or services 7at an acceptable cost8 thatcustomers perceive as being di6erent in ways

that are important to them$

0ocus is on nonstandardized products

Appropriate when customers value

di6erentiated eatures more than they valuelow cost$

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9hen the "rm has a thorough understanding owhat its target customers value

the relative importance they attach to thesatisaction o di6erent needs

or what they are willing to pay a premium!

the di6erentiation strategy can be e6ective inhelping it earn above/average returns

A good or service can be di6erentiated in many

ways$(nusual eatures

responsive customer service

rapid product innovations and technological

leadership

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o# to ;+tain aDi2erentiation Advantage

%ontrol%ost

Drivers i"needed

Reconfgure

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0igure 4.4 )*amples o Balue/Creating Activities Associatedwith the +i6erentiation Strategy

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Di2erentiation Strategy&%ompetitors

+eends againstcompetitors because

brand loyalty todi6erentiated producto6sets price competition$

'hreat o"ne#

entrants

Bargaining po#er

o"suppliers

Rivalryamong

competingfrms

Bargaining

po#er o"+uyers

'hreat o"

su+stituteproducts

Rivalry #ith%ompetitors

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Di2erentiation Strategy&Buyers

Can mitigate buyers#power because welldi6erentiated productsreduce customer

sensitivity to priceincreases$

'hreat o"ne#

entrants

Bargaining po#er

o"suppliers

Rivalryamong

competingfrms

Bargaining

po#er o"+uyers

'hreat o"

su+stituteproducts

Bargaining 3o#ero" Buyers

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Di2erentiation Strategy&Suppliers

Can mitigate suppliers#power by1

Absorbing price increasesdue to higher margins$

&assing along highersupplier prices becausebuyers are loyal todi6erentiated brand$

'hreat o"ne#

entrants

Bargaining po#er

o"suppliers

Rivalryamong

competingfrms

Bargaining

po#er o"+uyers

'hreat o"

su+stituteproducts

Bargaining 3o#ero" Suppliers

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Di2erentiation Strategy&6e# 4ntrants

Can deend against newentrants because1

ew products must surpassproven products$

ew products must be atleast equal to perormanceo proven products! buto6ered at lower prices$

'hreat o"ne#

entrants

Bargaining po#er

o"suppliers

Rivalryamong

competingfrms

Bargaining

po#er o"+uyers

'hreat o"

su+stituteproducts

'he 'hreat o"3otential 4ntrants

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Di2erentiation Strategy&Su+stitutes

9ell positioned relativeto substitutes because1'rand loyalty to a

di6erentiated product

tends to reducecustomers# testing o newproducts or switchingbrands$

'hreat o"ne#

entrants

Bargaining po#er

o"suppliers

Rivalryamong

competingfrms

Bargaining

po#er o"+uyers

'hreat o"

su+stituteproducts

3roductSu+stitutes

%ompetitive Risks o"

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%ompetitive Risks o"Di2erentiation

The price di6erential between the di6erentiator#s productand the cost leader#s product becomes too large$

+i6erentiation ceases to provide value or which customersare willing to pay$

A di6erentiated product becomes less valuable iimitation by rivals causes customers to perceive thatcompetitors o6er essentially the same good or service!but at a lower price

)*perience narrows customers# perceptions o the value o

di6erentiated eatures$ customers having positive e*periences with generic tissues may

decide that the di6erentiated eatures o the

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%ompetitive Risks o"Di2erentiation

Countereit goods

Countereit goods replicate di6erentiated eatures

o the "rm#s products$:Countereits are those products bearing a

trademark that is identical to or indistinguishablerom a trademark registered to another party! thus

inringing the rights o the older o the trademark

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9ocus Strategies

An integrated set o actions taken to producegoods or services that serve the needs o aparticular competitive segment$

&articular buyer groupDyouths or seniorcitizens

+i6erent segment o a product lineDproducts

or proessional painters versus do/it/yourselgroup

+i6erent geographic marketsD Sindh vs &unjab

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9ocus Strategies (cont!d)

0ocused cost leadership strategy7I

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9ocus Strategies (cont!d)

0ocused di6erentiation strategy

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9actors 'hat Drive 9ocusedStrategies

5arge "rms may overlook small niches$

A "rm may lack the resources needed to compete

in the broader market$

A "rm is able to serve a narrow market segmentmore e6ectively than can its larger industry/wide

competitors$

0ocusing allows the "rm to direct its resources tocertain value chain activities to build competitive

advantage$

i i i k "

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%ompetitive Risks o" 9ocusStrategies

A ocusing "rm may be :out/ocused; by itscompetitors$

A large competitor may set its sights on a "rm#sniche market$

Customer preerences in niche market maychange to more closely resemble those o thebroader market$ Cameras$

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Leadership:Di2erentiation Strategy

A "rm that successully uses an integratedcost leadership4di6erentiation strategy shouldbe in a better position to1

Adapt quickly to environmental changes$

5earn new skills and technologies more quickly$

)6ectively leverage its core competencies whilecompeting against its rivals$

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Di2erentiation Strategy(cont!d)

Commitment to strategic fe*ibility isnecessary or implementation o integratedcost leadership4 di6erentiation strategy$

0le*ible manuacturing systems 70.S8

Inormation networks

Total quality management 7TE.8 systems

9l i+l . " t i

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9le/i+le .anu"acturingSystems

Computer/controlled processes used toproduce a variety o products in moderate!fe*ible quantities with a minimum o manual

intervention$

%oal is to eliminate the :low/cost/versus/wideproduct/variety; tradeo6$

Allows "rms to produce large variety oproducts at relatively low costs$

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n"ormation 6et#orks

5ink companies electronically with theirsuppliers! distributors! and customers$

0acilitate e6orts to satisy customere*pectations in terms o product quality anddelivery speed$

Improve fow o work among employees in the"rm and their counterparts at suppliers anddistributors$

Customer relationship management 7C,.8

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'otal =uality .anagement

('=.) Systems)mphasize total commitment to the customer

through continuous improvement using1+ata/driven! problem/solving approaches

)mpowerment o employee groups and teams

'ene"tsIncreased customer satisaction

5ower costs,educed time/to/market or innovative products

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)*ceeding customers# e*pectations regardingquality is a di6erentiating eature

And eliminating process ine-ciencies to cutcosts allows the "rm to o6er that quality tocustomers at a relatively low price$

Thus! an e6ective TE. system helps the "rmdevelop the fe*ibility needed to spotopportunities to simultaneously increase

di6erentiation and reduce costs$

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%ost Leadership:Di2erentiation Strategy3ten involves compromises

'ecoming neither the lowest cost nor the mostdi6erentiated "rm$

'ecoming :stuck in the middle;5acking the strong commitment and e*pertise

that accompanies "rms ollowing either a cost

leadership or a di6erentiated strategy$

Documents

Lecture - 4 Sm