Chapter 4: Business-Level Strategy

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Business-Level Strategy (Defined)

An integrated and coordinated set of

commitments and actions the firm uses to gain a competitive advantage by exploiting core competencies in specific product markets.

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Core Competencies and Strategy

Core Competencies Resources and superior capabilities that are sources of competitive advantage over a firms rivals

Strategy

An integrated and coordinated set of actions taken to exploit core competencies and gain competitive advantage

Business-level Strategy

Providing value to customers and gaining competitive advantage by exploiting core competencies in individual product markets

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Customers: Their Relationship to Business-Level Strategies

Who will be served?

Key Issues in Business-level Strategy

What needs will be satisfied?

How will those needs be satisfied?

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Business-Level Strategies
Two types of competitive advantage firms must

choose between

Cost (Are our costs LOWER than rivals costs?) Uniqueness (Are we DIFFERENT than rivals?)

Two types of competitive scope firms must

choose between

Broad target Narrow target

These combine to yield 5 different generic

business level strategies.

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Five Business-Level Strategies

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LOW COST LEADERSHIP STRATEGIES

Low cost leadership strategies are based on a firms

ability to offer a product or service at a lower cost than its rivals. When a firm is able to build a substantial cost advantage over other competitors it can pass on its benefits to customers and gain a large market share.
Competitive advantage: The low-cost leader and operates with margins greater than competitors Competitive scope: Broad

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Types of Business-Level Strategies

Cost Leadership Strategy

Integrated set of actions designed to produce or deliver goods or services with features that are acceptable to customers at the lowest cost, relative to competitors. Must have competitive levels of quality, service, and other features and lowest overall costs

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Examples of Value-Creating Activities Associated with the Cost Leadership Strategy

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DIFFERENTIATION STRATEGIES
When firm appeal to a broad cross-section of the

market through offering differentiating features that make customers willing to pay premium prices, e.g., superior technology, quality, prestige.
Success with this type of strategy requires

differentiation features that are hard or expensive for competitors to duplicate.

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DIFFERENTIATION STRATEGIES

Targeted customers perceive product value Customized products differentiating on as many features as possible.

Differentiation Competitive advantage: Differentiation/uniqueness Competitive scope: Broad

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Examples of Value-Creating Activities Associated with the Differentiation Strategy

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FOCUS STRATEGIES
Focus strategies aim to sell good or services to narrow or specific target market, niche or segment. Focus builds competitive advantage through high specialization and concentration of resources in a given niche. Firms can build focus in one of the two ways. Focused Cost Leadership and Focused Differentiation.
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Focus strategies

Competitive advantage: Cost Leadership or Differentiation Competitive scope: Narrow An integrated set of actions taken to produce goods or services that serve the needs of a particular competitive segment Attractive when:

Firm lacks resources to compete in the broader market Firm may be able to more effectively serve a narrow market segment than larger industry-wide competitors Niche is attractive Large firms may overlook small niches
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Focused cost Leadership:

A market niche strategy, concentrating on a narrow customer segment and competing with lowest prices, which, again, requires having lower cost structure than competitors. Focused Cost Leadership

Competitive advantage: Low-cost Competitive scope: Narrow industry segment

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Types of Business-Level Strategies

Focused Differentiation
Focused Differentiation: a second market niche strategy, concentrating on a narrow customer segment and competing through differentiating features e.g., a high-fashion women's clothing boutique. Competitive advantage: Differentiation Competitive scope: Narrow industry segment

Apple,

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Integrated Cost Leadership/Differentiation

Efficiently produce products with differentiated attributes

Efficiency: Sources of low cost Differentiation: Source of unique value

Involves engaging in primary and support activities that allow a firm to simultaneously pursue low cost and differentiation Low price with somewhat highly differentiated features More value for the money Often called best-cost strategy Examples: Toyota, Target
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Integrated Cost Leadership/Differentiation

Risks of Integrated Strategies

Harder to implement than other strategies Must simultaneously reduce costs while increasing differentiation Can get stuck in the middle resulting in no advantages and poor performance

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