Strategy at the Business-Level

September 2014

Mara Fonseca Paredes

BUT, first




Function-level strategies can build resources and
capabilities to enhance a companys distinctive
competencies.
Primary Roles of
Value Creation Functions
Roles Played in Implementing Reliability
Improvement Methodologies
Functional Roles for
Achieving Superior Innovation
Primary Roles of Functions in Achieving
Superior Responsiveness to Customers
Business-Level Strategy
Firms must decide/evaluate:
1. Customer needs
WHAT is to be satisfied
2. Customer groups
WHO is to be satisfied
3. Distinctive competencies
HOW customers are to be satisfied
A successful business model results from
business-level strategies that create a
competitive advantage over its rivals.
Customer Needs and
Product Differentiation
! Customer needs
The desires, wants, or cravings that can be
satisfied through product attributes
! Customers choose a product based on:
1. The way the product is differentiated from
other products of its type
2. The price of the product

! Product differentiation
Designing products to satisfy customers
needs in ways that competing products
cannot.
Customer Groups and Market
Segmentation
! Market Segmentation
The way customers can be grouped based on
important differences in their needs or preferences
! Main Approaches to Segmenting Markets
1. Ignore differences in customer segments
Make a product for the typical or average customer
2. Recognize differences between customer groups
Make products that meet the needs
of all or most customer groups
3. Target specific segments
Choose to focus on and serve just
one or two selected segments
Identifying Customer Groups
and Market Segments
Three Approaches
to Market Segmentation
Implementing the Business Model
To develop a successful business model,
strategic managers must devise a set of
strategies that determine:
How to DIFFERENTIATE their product
How to PRICE their product
How to SEGMENT their markets
How WIDE A RANGE of products to develop
A profitable business model depends on
providing the customer with the most value
while keeping cost structures viable.
Wal-Marts Business Model
Competitive Positioning
at the Business Level
Source: Copyright C. W. L. Hill & G. R. Jones,
The Dynamics of Business-Level
Strategy, (unpublished manuscript, 2002).
Maximizing the profitability of the companys business
model is about making the right choices with regard to
value creation through differentiation, costs, and pricing.
Cost Leadership
Cost leaders establish a cost structure that
allows them to provide goods and services
at lower unit costs than competitors.
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.
Advantages of
Cost Leadership Strategies
! 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 leaders are able to charge a lower price
or are able to achieve superior profitability
than their competitors at the same price.
Disadvantages of
Cost Leadership Strategies
" Competitors may lower
their cost structures.

" Competitors may
imitate the cost
leaders methods.

" Cost reductions may
affect demand.
Companies with a differentiation strategy
create a product that is different or distinct
from its competitors in an important way.
Strategic Choices
A differentiator:
Stives to differentiate itself on as many
dimensions as possible.
Focuses on quality, innovation, and
responsiveness to customer needs.
May segment the market in many niches.
Concentrates on the organizational functions that
provide a source of distinct advantages.
Differentiation
Advantages of
Differentiation Strategies
! Customers develop brand loyalty.
! Powerful suppliers are not a problem because the
company is geared more toward the price it can
charge than its costs.
! Differentiators can pass price increases on to
customers.
! Powerful buyers are not a problem because the
product is distinct.
! Differentiation and brand loyalty are barriers to entry.
! The threat of substitute products depends on
competitors ability to meet customer needs.
Differentiators can create demand for their
distinct products and charge a premium price,
resulting in greater revenue and higher profitability.
! Difficulty maintaining long-term
distinctiveness in customers eyes.
Agile competitors can quickly imitate.
Patents and first-mover advantage are
limited in their duration.
! Difficulty maintaining premium price.

Disadvantages of
Differentiation Strategies
Focus
The focuser strives to serve the need of a
targeted niche market segment where it has
either a low-cost or differentiated competitive
advantage.
Strategic Choices
The focuser selects a specific market niche
that may be based on:
" Geography
" Type of customer
" Segment of product line
Focused company positions itself as either:
" Low-Cost or
" Differentiator
Advantages of
Focus Strategies
! The focuser is protected from rivals to the
extent it can provide a product or service
they cannot.
! The focuser has power over buyers because
they cannot get the same thing from anyone
else.
! The threat of new entrants is limited by
customer loyalty to the focuser.
! Customer loyalty lessens the threat from
substitutes.
! The focuser stays close to its customers and
their changing needs.
Disadvantages of
Focus Strategies
! The focuser is at a disadvantage with regard
to powerful suppliers because it buys in
small volume (but it may be able to pass
costs along to loyal customers).
! Because of low volume, a focuser may have
higher costs than a low-cost company.
! The focusers niche may disappear because
of technological change or changes in
customers tastes.
! Differentiators will compete for a focusers
niche.
Why Focus Strategies
Are Different
# $
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Broad Differentiation:
Cost Leadership and Differentiation
A broad differentiation business model may result when a
successful differentiator has pursued its strategy in a way
that has also allowed it to lower its cost structure:
! Using robots and flexible manufacturing cells reduces costs
while producing different products.
! Standardizing component parts used in different end
products can achieve economies of scale.
! Limiting customer options reduces production and
marketing costs.
! JIT inventory can reduce costs and improve quality and
reliability.
! Using the Internet and e-commerce can provide information
to customers and reduce costs.
! Low-cost and differentiated products are often both
produced in countries with low labor costs.
Implications of Strategic Groups for
Competitive Positioning
Strategic managers must:
1. Map their competitors
2. Better understand changes in the industry
3. Determine which strategies are successful
4. Fine tune or radically alter business models and
strategies to improve competitive position

Strategic Groups are groups of companies that follow a
business model similar to other companies within their
strategic group, but are different from that of other
companies in other strategic groups.

Competitive Positioning:
Strategic Groups
Strategic Groups
Failures in
Competitive Positioning
! Many companies, through neglect, ignorance or
error:
Do not work continually to improve their business model
Do not perform strategic group analysis
Often fail to identify and respond to changing opportunities
and threats in the industry environment
! Companies lose their position on the value
frontier when:
They have lost their source of competitive advantage
Their rivals have found ways to push out the value creation
frontier and leave them behind
There is no more important task than ensuring
that the company is optimally positioned against
its rivals to compete for customers.