Module 2 Summary Paper
gnsv.srinivas
hill_ppt_12e_ch05.pptxChapter 5:
Business-Level Strategy
©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Learning objectives
Explain the difference between low-cost and differentiation strategies.
Articulate how the attainment of a differentiated or low-cost position can give a company a competitive advantage.
Explain how a company executes its business-level strategy through function-level strategies and organizational arrangements.
2
©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Learning objectives
Describe what is meant by the term value innovation.
Discuss the concept of Blue Ocean Strategy, and explain how innovation in business-level strategy can change the competitive game in an industry, giving the innovator a sustained competitive advantage.
3
©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Business-level strategy
Overall competitive theme of a business.
Way a company positions itself in the marketplace to gain a competitive advantage.
Different positioning strategies that can be used in different industry settings.
4
©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Lowering costs
Enables a company to:
gain a competitive advantage in commodity markets.
undercut rivals on price.
gain market share.
maintain or increase profitability.
5
©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
differentiation
Distinguishing oneself from rivals by offering something that they find hard to match .
Product differentiation is achieved through:
superior reliability, functions, and features.
better design, branding, point-of-sale service, after sales service, and support.
Advantages
Allows a company to charge a premium price.
Helps a company to grow overall demand and capture market share from its rivals.
6
©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
7
©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
8
©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
the differentiation-low cost tradeoff
Efficiency frontier
Shows all the positions a company can adopt with regard to differentiation and low cost.
Has a convex shape because of diminishing returns.
Multiple positions on the differentiation-low cost continuum are viable.
Have enough demand to support an offering.
9
©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
the differentiation-low cost tradeoff
To get to the efficiency frontier, a company must:
pursue the right functional-level strategies.
be properly organized.
ensure its business-level strategy, functional-level strategy, and organizational arrangement align with each other.
10
©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Value innovation
Occurs when innovations push out the efficiency frontier in an industry, enabling greater value to be offered through superior differentiation.
At a lower cost than was thought possible.
Enable a company to outperform its rivals for a long period of time.
11
©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
12
©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Market segmentation
Decision of a company to group customers based on important differences in their needs to gain a competitive advantage.
Standardization strategy - Producing a standardized product for the average customer, ignoring different segments.
Segmentation strategy - Producing different offerings for different segments, serving many segments or the entire market.
Focus strategy - Serving a limited number of segments or just one segment.
13
©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Comparison of Market segmentation approaches
14
©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Standardization strategy
Associated with lower costs than a segmented strategy
Segmentation
strategy
Involves customization of product offerings, which drive up costs as:
Focus
strategy
Attempts to attain economies of scale through high sales volume
achieving economies of scale is difficult.
production and delivery costs tend to be high.
Have a higher cost structure as:
new product features and functions need to be added.
attaining economies of scale is difficult.
business-level strategies
15
Give a company specific form of competitive position and advantage in relation to its rivals
Results in above-average profitability
Generic business-level strategy
Lowering costs in order to lower prices and still make a profit
Broad low-cost strategy
When a company differentiates its product in some way
Broad differentiation strategy
Targeting a certain segment or niche and trying to be the low-cost player in that niche
Focus low-cost strategy
©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Business-level strategy, industry, and competitive advantage
16
©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Low-cost companies
Charge low prices and still make profits
Absorb cost increases from suppliers
Offer deep discount prices for buyers
Differentiated companies
Withstand pricing pressure from powerful buyers and increase prices without buyer resistance
Absorb price increases from suppliers and pass them to customers without losing market share
Withstand substitute goods, as a result of brand loyalty
17
©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
18
©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Lowering costs through functional strategy and organization
Achieve economies of scale and learning effects
Adopt lean production and flexible manufacturing technologies
Implement quality improvement methodologies to produce reliable goods.
Streamline processes
Use information systems to automate business process
19
©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Lowering costs through functional strategy and organization
Implement just-in-time inventory control systems.
Design products with a focus on reducing costs.
Increase customer retention.
Ensure that the organization’s structure, systems, and culture reward actions that lead:
higher productivity.
greater efficiency.
20
©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Differentiation through functional-level strategy and organization
Customize product offering and marketing mix to different market segments.
Design product offerings that have a high perceived quality regarding their:
functions.
features.
performance.
reliability.
Handle and respond to customer queries and problems promptly.
21
©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Differentiation through functional-level strategy and organization
Focus marketing efforts on:
brand building.
perceived differentiation from rivals.
Ensure employees act in a manner consistent with the company’s image.
Create the right organizational structure, controls, incentives, and culture.
Ensure that the control systems, incentive systems, and culture align with the strategic thrust.
22
©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Blue ocean strategy
Successful companies build their competitive advantage by redefining their product offering through value innovation.
Creating a new market space.
Blue Ocean - Wide open market space where a company can chart its own course.
23
©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Blue ocean strategy
To redefine its market and create a new business-level strategy, a company must:
eliminate factors that rivals take for granted, and reduce costs.
reduce certain factors below industry standards, and lower costs.
raise certain factors above industry standards, and increase value.
create factors that rivals do not offer, and increase value.
24
©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
