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Chapter 5 Hill Textbook
Chapter 5 Hill Textbook
Chapter 5 Hill Textbook
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Business-Level Strategy
A successful business model results from business level strategies that create a competitive advantage over its rivals.
They must decide on:
3. Distinctive competencies
HOW customers are to be satisfied These decisions determine which strategies are formulated & implemented to put a business model into action.
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Product differentiation
Designing products to satisfy customers needs in ways that competing products cannot:
Different ways to achieve distinctiveness Balancing differentiation with costs Ability to charge a higher or premium price
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A profitable business model depends on providing the customer with the most value while keeping cost structures viable.
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Source: Copyright C. W. L. Hill & G. R. Jones, The Dynamics of Business-Level Strategy, (unpublished manuscript, 2002).
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3. Differentiation
Features important to customers & distinct from competitors that allow premium pricing
4. Focused Differentiation
Distinctiveness in selected market niches where it better meets the needs of customers than the broad differentiators
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The Four Principal Generic Strategies 1. 2. 3. 4. Cost Leadership Focused Cost Leadership Differentiation Focused Differentiation
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Strategic Choices
The cost leader does not try to be the industry innovator. The cost leader positions its products to appeal to the average or typical customer. The overriding goal of the cost leader is to increase efficiency and lower its costs relative to industry rivals.
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Protected from industry competitors by cost advantage Less affected by increased prices of inputs if there are powerful suppliers Less affected by a fall in price of inputs if there are powerful buyers Purchases in large quantities increase bargaining power over suppliers Ability to reduce price to compete with substitute products Low costs and prices are a barrier to entry
Cost leader is able to charge a lower price or is able to achieve superior profitability than its competitors at the same price.
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Competitors may
imitate the cost leaders methods.
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Strategic Choices
The focuser selects a specific market niche that may be based on:
Geography Type of customer Segment of product line
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Strategic Choices
A differentiator strives to differentiate itself on as many dimensions as possible. Differentiator focuses on quality, innovation, and responsiveness to customer needs. May segment the market in many niches. A differentiated company concentrates on the organizational functions that provide a source of distinct advantages.
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Differentiators can create demand for their distinct products and charge a premium price, resulting in greater revenue and higher profitability.
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The Broad Differentiators The middle of the valuecreation frontier is occupied by broad differentiators, which have pursued their differentiation strategy in a way that has allowed them to lower their cost structure at the same time. They may pose serious threats to both the cost leaders and differentiators over time.
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2.
3. 4.
Determine which strategies are successful Fine tune or radically alter business models and strategies to improve competitive position
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There is no more important task than ensuring that the company is optimally positioned against its rivals to compete for customers.
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We know what happens to people who stay in the middle of the road. They get run over.
- Aneurin Bevan
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