Chapter 6

BUSINESS-LEVEL STRATEGY
AND INDUSTRY
ENVIRONMENT

Presented by: Shanga Roy Arni

 Fragmented Industry
Fragmented Industry: Composed of a large number of small and medium sized
companies
Reasons for fragmentation:
• Lack of economies
• Brand loyalty in the industry is primarily local
• Low entry barriers due to lack of scale economies and national brand loyalty
• Focus strategy works best for a fragmented industry.
 Consolidating a Fragmented Industry
Through Value Innovation

Disadvantages:
• Tight control of operation is not possible
• Major portion of profit go to the franchisee
• When Franchises face a higher cost of
capital, it raises system costs and lowers
profitability.
 Strategies in Fragmented Industries
Chaining
• Chaining is where companies
establish networks of linked
merchandise outlets that are
interconnected by IT and function as
one large company.
• Chaining allows companies to
negotiate large price reductions with
suppliers.
• Companies using chaining can
overcome the barrier of high
transportation costs by establishing
regional distribution centers.
Franchising
• In Franchising, the parent company
grants to its franchisees the right to
use the parent’s name, reputation and
business model in a particular location
in return for a franchise fee and often
a percentage of profits (McDonald,
KFC)
• The franchisees own the business,
therefore, they are motivated to make
the company wide business model
work effectively, and ensure quality
consistent with the customers’ needs.
Horizontal Mergers
• Horizontal merger is a merger where
companies manufacturing similar
kinds of commodities or running
similar types of businesses merge.
• Companies like Macy’s and Kroger
chose a strategy of horizontal to
consolidate their respective
industries.
• By pursuing horizontal merger,
companies are able to obtain
economies of scale and secure a
national market for their product.
Strategies in Embryonic and Growth
Industries

Embryonic Industry
• The industry that is beginning to develop is called
embryonic industry.
• An embryonic industry emerges when a technological
innovation create a new product
• In the embryonic stage, the appropriate business level
strategy is share-building strategy.

Growth Industry
• A growth industry is one in which first-time demand is
rapidly expanding as many new customers enter the
market.
• At the groeth stage, the appropriate investement strategy
is growth strategy.
 Embryonic strategies
• Share-building strategy
• The aim is to build market share by developing a stable and
distinct competitive advantage to attract customers who have no
knowledge of the company’s product.
• Customer demand for the products of an embryonic industry is
initially limited because:
➢ The limited performance and poor quality of the first product.
➢ Customers’ unfamiliarity with what the new product can do for
them.
➢ Poorly developed distribution channels.
➢ Lack of complementary product to increase the value.
➢ High production costs because small volumes of production.
 Growth strategies
• The goal is to maintain its relative competitive position in a
rapidly expanding market.
• Companies in a weak competitive position at this stage engage in
a market concentration: a focused business model to reduce its
needs.
• The growth stage begins to develop when 3 things happen:

Ongoing technological Companies in the

progress makes a product Complementary industry work to
easier to use, and increase products are find ways to reduce
it value for the average developed. the costs of making
customer the new product.
 Market Development and Customer Group

Innovators are customers Early adopters understand The early majority

who are delighted to be the
first to purchase and
experiment with a product
based on new technology.
INNOVATORS
that the technology may
have important future
applications and are
willing to see if they
pioneer new uses.
EARLY ADOPTERS
forms the leading wave
of the mass market
(beginning of growth
stage)
EARLY MAJORITY

The late majority are the Laggers are customers who

customers who purchase a are inherently conservative
new technology only after and unappreciative to uses
it is obvious it has great of new technology.
utility and here to stay.

LATE MAJORITY LAGGERS

 Strategic Implications: Crossing
The Chasm

Innovators and early Early Majority

adopters

• Technologically sophisticated • Value ease of use and

and willing to tolerate the
limitations of the product.
• Reached through specialized
distribution channels.
• Companies produce small
quantities of product that are
priced high.
reliability
• Require mass market
distribution and mass market
advertising campaigns.
• Require large-scale mass
production to produce high
quality product at alow price.
 Factors that accelerate customer demand
. New product’s relative advantage
Trialability
The degree to which a new product is perceived as
being better at satisfying customers needs
Degree to which potential customers can experiment
with anew product during a hands on trial.

Complexity

Complex products will defuse slowly than products that Observability

are easy to use
Degree to which the results of using and enjoying a
new product can be seen and appreciated by other
Compatibility people.

The degree to which a new product is perceived as

being consistence with the current needs
 Strategy of Mature Industries
• A mature industry is commonly dominated by a small number of large companies.
• If a mature company changes its strategies, their actions are likely to stimulate a competitive
response from industry rivals.

Strategies to deter entry in mature industries:

Product Technology Strategic

Limit Price
proliferation Upgrading Commitment
Catering to the Charging a price Deterring entry by Investments that
needs of all market that s lower that that investing in costly signal an
segments to deter required to technological incumbent's long
entry by maximize profits in upgrades term commitment to
competitors. the short run a market or a
segment of a
market.
 Strategies to manage rivalry
. Price signaling Market penetration

• Companies increase or decrease product prices to • Occurs when a company concentrates on expanding
Convey their intentions to other companies market share in its existing product markets

Price leadership Product development

• When one company assumes the responsibility for • Creation of new or improved products to replace
determining the pricing strategy that maximizes existing products
industry profitability

Non-price competition Market development

• Use of product differentiation strategies to deter

• When a company searches for new market segments
potential entrants and manage rivalry within an
to increase the sale of its existing products
industry
 Strategy of Decline Industries

Leadership Divestment
Niche strategy Harvest strategy
strategy strategy
Aims at growing in Focuses on pockets Requires the Selling an
a declining industry of demand where company to halt all underperforming
by picking up a the demand is new investments in business before the
market share of stable, or declining capital equipment industry enters into
companies that are less rapidly that the etc. the steep decline.
leaving the industry. industry as a whole.