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Topic4-BusinessStrategy.pptxWPC480 Strategic Management
Topic 4: Business-level Strategy
Professor R. Scott Livengood
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Big Question Question
What are the different types of strategies available to firms to help them achieve a sustainable competitive advantage?
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Platinum, Clinging to Its Status as a Top Precious Metal, Faces a Crisis
What generic business-level strategy are firms in the platinum industry following? How do their activities align with this strategy?
What advantages and disadvantages do you see with this strategy?
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How Dollar General Became Rural America’s Store of Choice
What generic business-level strategy is Dollar General following? How do their activities align with this strategy?
What advantages and disadvantages do you see with this strategy?
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Core Competency and Strategy
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Core competencies
Strategy
Business-level strategy
Customer Focus
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Key Issues in Business-level Strategy
Who will be served?
What needs will be satisfied?
How will those needs be satisfied?
Different Approach to Strategy
“Strategic Loop of Despair”
“Lean Strategy”
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Purpose of Business-level Strategy
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Based on core competencies, decide:
what different things to do (differentiation), or
what same things to do differently (lower process costs), than rivals
Business-level Strategies
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Generic Business-level Strategies
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Differentiation
Seeks to create higher value than competitors
Offers products or services with unique features
Keeps the firm’s cost structure as low as possible
Charges higher prices
Cost Leadership
Seeks to create similar value as competitors
Products or services delivered at lower cost
Charges lower prices
Cost Leadership Strategy
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Product Characteristics
Relatively standardized (commoditized) products
Features broadly acceptable to many customers
Lowest competitive price
Goal
Reduce the firm’s cost below its competitors
Offer adequate value
Resources are focused on
Reducing cost/ exploiting efficiences
Reducing prices for customers
Cost Response to Five Forces
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Threat of Rivalry
rivals hesitate to compete on basis of price
lack of price competition leads to greater profits
Power of Buyers
drives prices far below competitors, causing them to exit, thus shifting power with buyers (customers) back to the firm
increase switching costs
Power of Suppliers
able to absorb cost increases due to low cost position.
able to make very large purchases, reducing chance of supplier using power
Cost Response to Five Forces
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Threat of New Entrants
enter on a large scale in order to be cost competitive
increase the time it takes to move down the industry learning curve
Threat of Substitutes
lower prices in order to maintain its value position
make investments to add features unavailable in substitutes
Risks of Cost Leadership Strategy
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Processes used may become obsolete
Competitors catch up and erode cost leader’s advantage
Competitors, using their own core competencies, may successfully imitate the cost leader’s strategy
Cost reductions may occur at expense of customers’ perceptions of value (cheap)
Differentiation Strategy
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Product Characteristics
Unique, special, premium
High service, new product launches
Acceptable price
Goal
Increase perception of value
Capture perception with higher prices
Resources are focused on
Creating higher value
Marketing & Promotion
Innovation/ Exploration
Differentiation Response to Five Forces
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Threat of Rivalry
customer’s brand loyalty to differentiated product offsets price competition
Power of Buyers
well differentiated products reduce customer sensitivity to price increases
Power of Suppliers
absorb price increases due to higher margins
pass along higher supplier prices due to buyer loyalty
Differentiation Response to Five Forces
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Threat of New Entrants
differentiation sets a high bar on performance and brand
Threat of Substitutes
brand loyalty to a differentiated product tends to reduce customers’ testing of new products or switching brands
Competitive Risks of Differentiation
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The price differential between the differentiator’s product and the cost leader’s product becomes too large
Differentiation ceases to provide value for which customers are willing to pay
Experience narrows customers’ perceptions of the value of differentiated features
Counterfeit goods replicate the differentiated features of the firm’s products
Summary
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Success comes from leveraging strengths and mitigating weaknesses
Exploiting opportunities and avoiding threats
Customer focus helps ensure a firm creates value
