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Rothaermel Exercise 2 – BUSI 690
Thonya Lucas
Liberty University
Running head: ROTHAERMEL EXERCISE 2
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Generic Business Strategy versus Focused Business Strategy
A broad generic business strategy is one where firms sell their products/services at
average industry prices to earn a higher profit share than competitors or below average industry
prices to gain market share. Possible drawbacks of this strategy are the risk of other firms also
lowering their prices. Several firms using a focused strategy targeting a narrow market might
attain a lower cost within their sector, thus gaining a substantial piece of the market share is also
a risk. Lastly, competitive advantage could be eliminated if other competitors can catapult their
production capabilities with technology advances.
A focused strategy is one that functions similar to a cost leadership strategy “except with
a narrow focus on a niche market” (Rothaermel, 2017). A drawback of the focused strategy is its
limited bargaining power with suppliers due to its narrow focus. Risks of this strategy are:
imitation and changes in the target segment; easy for a broad-market cost leader to adjust its
product in order to compete directly; competitors using a focus strategy may be able cut out sub-
segments that they can serve better.
Value Chain Examples
The value chain portrays the internal activities an organization uses to transform inputs
into outputs (Rothaermel, 2017). It is comprised of primary and support activities based on the
organization’s activities that add value for their particular business strategy. The “primary
activities add value directly as the firm transforms inputs into outputs—from raw materials
through production phases to sales and marketing and finally customer service” and the “support
activities add value indirectly” (Rothaermel, 2017, p. 117).The following value chains show the
various activities for organizations using 3 different business strategies:
Starbucks – Differentiation Strategy
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Support Activities
Primary
Activities
Description
Infrastructure – locations,
government regulations
Inbound
logistics
High quality coffee beans, supply chain
management
Human Resources – Trained staff,
incentives, benefits
Operations
Corporate stores, franchises, retail
operations (grocery and specialty stores),
licensing agreements
Technology – latest technology
coffee makers, blenders, while
maximizing cost
Outbound
logistics
Distribution
Procurement – right locations
equipped with proper materials and
supplies
Marketing
and Sales
Product samples, word of mouth
advertising, member only incentives
Service
Superior customer service
Walmart – Cost Leadership strategy
Support Activities
Primary
Activities
Description
Infrastructure – locations, government
regulations, largest private employer
Inbound
logistics
Fast and responsive
transportation system, store
owned truck fleet, driver
tracking
Human Resources – diverse workforce,
advancement opportunities, employee
retention and relations, competitive salaries
and benefits
Operations
Supercenters, neighborhood
stores,
Technology: barcoding and RFID technology,
e-commerce, online grocery shopping app
Outbound
logistics
Fast and responsive
transportation system, store
owned truck fleet; driver
tracking
Procurement – reduced purchase costs, quality
control; purchase of merchandise directly
from manufacturer
Marketing
and Sales
Store greeters, blue vests for
easy identification of staff,
Service
Hours of operation, one stop
shop, low prices
Avon - Integration Strategy
Support Activities
Primary
Activities
Description
Infrastructure – sales
representatives
Inbound
logistics
Supply chain management, order taking,
specifications, scheduling
Operations
Environmentally conscious facilities, efficient
shipping practices, global product management
Technology – R&D, e-
Outbound
Delivery, scheduling,
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commerce, order management
logistics
Procurement – cosmetic,
jewelry, clothing suppliers
Marketing and
Sales
Bundle selling, internet, business website for
each sales representative
Service
Personalized order and delivery
Industry Life Cycle
The five stages of the industry life cycle are: introduction, growth, shakeout, maturity, and
decline. The introduction stage is where the product is launched and the innovator’s core
competency is R&D in order to create new products that will appeal to customers (Rothaermel,
2017). During the growth stage market growth speeds up and demand increases quickly. The
shakeout stage is when the growth rate begins to decline with limited market demand generally
consisting of replacement or repeat purchases only. The maturity stage is where only a few firms
remain (larger firms), the market has reached maximum size and industry demand has dropped to
zero or a negative (Rothaermel, 2017).
The vitamin and dietary supplement industry has been around for quite some time.
However with the emphasis on wellness and prevention and consumer’s desire to live longer and
healthier lives, the industry has experienced a surge in demand over the past five years.
Currently, the industry is in the growth stage due to increased demand “from a larger
mainstream, health-conscious consumer base and an increasingly aging population” (Ibis world,
2016).Vitamins and supplements have a low market share where four companies account for
26.3% of the market share (Ibisworld.com, 2016). This industry experienced a shakeout during
the financial crisis of 2008, when the majority of sales were by repeat customers whose
household income was not severely impacted by the financial crisis. It is expected that vitamin
and supplements will continue in the growth stage over the next decade as consumer’s disposable
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income continues to increase and firms continue to place more emphasis and offer incentives for
health prevention in the workplace (Ibis World, 2016).
Innovation Types
Uber is an American app based transportation service that has revolutionized the
traditional taxi service experience by combining existing technology (app) with existing service
(taxi transportation). Uber has also made a major impact on messenger services (UberRush) by
extending the focus of messaging from businesses to individuals. Uber uses the incremental
innovation where the firm “builds on an established knowledge base and steadily improves an
existing product or service offering” and “targets existing markets using existing technology”
(Rothaermel, 2017, p. 220). Uber’s messenger service is an example of an architectural
innovation as they transitioned messenger services from businesses to individuals.
Low Technology Innovations
3M post-it notes introduced in 1979 is an example of a low-technology innovation that
has given 3M a competitive advantage. Creating a miniature notepad that is also used as a
bookmark with adhesive has transformed the office supply industry. Spencer Silver, a 3M
scientist created the adhesive in 1968, but could not determine a problem it could solve. Silver
shares his creation with other 3M scientists, with no success. In 1974, Art Fry, another 3M
scientist, dreams of a bookmark with an adhesive to hold his place in the church hymnal, and
remembers Silver’s adhesive (3M Post-it evolution, 2016). In 1977, manufacturing obstacles
were resolved and post-it notes were introduced to 3M employees (3M Post-it evolution, 2016).
In 1978 3M provided samples of the product to the office supply industry; in 1979 post-it’s were
introduced to 11 western states; and in 1980 they were distributed nationally (3M Post-it
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evolution, 2016). 3M continues to enhance the product (various colors, lines, pop-up) and has
improved the adhesive to transition to standard household products such as picture hangers.
Differentiation and Diversification Strategies
A differentiation strategy involves the development of a product or service that has
unique attributes valued by customers because they perceive them to be better or different from
what competitors are offering. Diversification is a corporate strategy to enter into a new market
or industry which the business is not currently in, while also creating a new product for that new
market.
Walmart has repeatedly added or entered into new markets to become a one-stop shop for
consumers which mean they use a corporate strategy of differentiation. Walmart’s focus on
differentiation is achieved through strategically deciding where they would compete by targeting
rural areas to place their supercenters, and most recently the addition of neighborhood smaller
markets for customer convenience. They consistently offer low prices (price leader) and an
enhanced customer experience (one-stop shop). Walmart incorporates a bundling of products and
services (i.e. auto service, general merchandise, banking, beauty/nail salons, pharmacy, and
furniture) all under one roof.
Horizontal Integration
Horizontal integration is the “process of merging with a competitor at the same stage of
the industry value chain” (Rothaermel, 2017, p. 279). This strategy leads to industry
consolidation that can expand the company’s strategic standing in a single industry (Rothaermel,
2017). Advantages for Live Nation are that they have eliminated the threat of their primary
competitor; they have gained a larger market share, and ability to offer more products/services at
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a lower cost. A potential risk for Live Nation to consider is reduced flexibility due to the
company size and potential legal repercussions if viewed as a monopoly.
Semi-Globalization
Globalization is a “process of closer integration and exchange between different countries
and peoples worldwide, made possible by falling trade and investment barriers, advances in
telecommunications, and reductions in transportation costs” (Rothaermel, 2017, p. 309). I agree
with Professor Ghemawat that the world is not flat and at most semi-globalized. Globalization
has created a world where it is much easier and profitable for businesses to expand into other
geographic areas, but the world as a whole has not bought into globalization. The exchange
between people of different countries has in no way caught up with the business world. This is
even evident within the United States. For example, there are 27 counties that make up the
Atlanta metropolitan area. While many residents may travel into the city of Atlanta (downtown)
for working purposes, when they return to the particular county in which they live, they do
everything within that county (friendships, business, church, extracurricular activities). Statistics
shared by Professor Ghemawat on the low percentage of voice calls, first generation immigrants,
investments, patents, and internet traffic across national borders serves as proof that the level of
globalization is very low (Rothaermel, 2017). Overall, it may seem like the world is getting
smaller because you can find familiarity wherever you travel (i.e. McDonalds, Wal-Mart, and
KFC). Yet our ability to communicate and rally with people from almost every foreign country
because of advances in telecommunication and transportation is only being utilized on a small
scale.
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References
The evolution of the post-it note. (2016, September 10). Retrieved from
http://solutions.3m.com.hk/wps/portal/3M/en_HK/post-it/index/post-
it_past_present/history/the_timeline/
Vitamin and supplement manufacturing in the US: market research report. (2016, September 10).
Retrieved from http://www.ibisworld.com/industry/default.aspx?indid=490
Rothaermel, F. T. (2017). Strategic management concepts (Custom 3rd ed.) New York, NY:
McGraw-Hill.
