general motors
Chapter 5: Selecting Business-level Strategies
Understand and be able to apply the four primary generic strategies to the analysis of companies
Know the advantages and disadvantages associated with each strategy
Know the limitations of generic strategies
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Generic Strategies
A general way of positioning a firm’s business level strategy within an industry
Focusing on generic strategies allows executives to concentrate on the core elements of firms’ business-level strategies
The most popular set of generic strategies is based on the work of Professor Michael Porter of the Harvard Business School
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Generic Strategies
Two competitive dimensions are the keys to business-level strategy:
Source of competitive advantage - gain an edge on rivals by keeping costs down or offer something unique in the market
Scope of operations – target customers in general or seek to attract just a segment of customers
Four generic business-level strategies emerge from these decisions:
Cost leadership
Differentiation
Focused cost leadership
Focused differentiation
Generic Strategies
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Cost Leadership
Cost leadership: Generic strategy that offers products or services with acceptable quality and features to a broad set of customers at a low price
Economies of scale are essential
Expenses are distributed across a greater number of items
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Cost Leadership
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Cost Leadership
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The Yugo, for example, was an extremely unreliable car that was made in Eastern Europe and sold in the United States for about $4,000. Despite its attractive price tag, the Yugo was a dismal failure because drivers simply could not depend on the car for transportation. Yugo exited the United States in the early 1990s and closed down entirely in 2008.
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Cost Leadership
“Dell finds it hilarious that HP and Sony fund researchers to come up with new ideas.”
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“Steamrollered by Dell” Newsweek, February 21, 2005
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Cost Leadership
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Differentiation
Differentiation strategy: A generic strategy that attempts to convince customers to pay a premium price for its good or services by providing unique and desirable features
Using a differentiation strategy means that a firm is competing based on uniqueness, rather than price
Its success depends on offering unique features and communicating the value of these features to potential customers
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Differentiation
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Differentiation
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Strategy Formulation in Razor Industry
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Razor Wars
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Focused Cost Leadership and Focused Differentiation
Focus strategies: Generic business strategies that involve targeting a relatively narrow niche of potential customers
Focused cost leadership: A generic business strategy that requires competing based on price to target a narrow market
Focused differentiation: A generic business strategy that requires offering unique features that fulfill the demands of a narrow market
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Focused Cost Leadership
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Focused Cost Leadership
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Focused Differentiation
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Focused Differentiation
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Focused Cost Leadership and Focused Differentiation
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Breadth of Competitive Scope
Source of Competitive Advantage
Broad
Target
Market
Narrow
Target
Market
Cost
Other examples?
Uniqueness
Cost
Leadership
Differentiation
Focused
Low-cost
Focused
Differentiation
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Best-Cost
A business level strategy followed by firms that charge relatively low prices and offer substantial differentiation
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Difficulty of the Best-Cost Strategy
Creating unique features and communicating to customers why these features are useful generally raises a firm’s costs of doing business
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Best-Cost
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Chipotle Case Video
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http://www.bloomberg.com/video/behind-the-counter-inside-chipotle-5AnJ9NB~SOG8VvhkjU8QKw.html
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Pursuing Best-Cost through Low-Overhead
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Stuck in the Middle
A situation where a business level strategy does not offer features that are unique enough to convince customers to buy its offerings
Its prices are too high to effectively compete on based on price
Lack a clear market or competitive pricing
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Stuck in the Middle
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Getting Outmaneuvered by Competitors
Firms often become stuck in the middle not because executives fail to arrive at a well-defined strategy
But because firms are simply outmaneuvered by their rivals
Strategies must adapt to changes in the general and industry environments
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Preventing “Stuck in the Middle”
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