Part 2:

Strategic Choices
 The Focus of Part 2:
Strategic Choices (1)
 How an organisation positions itself in
relation to competitors in terms of its
overall competitive strategy
 The scope and diversity of an
organisation’s products and therefore the
nature of its corporate portfolio and how
that portfolio is managed
 The geographic scope of the organisation
and the bases of its international strategy

Exploring Corporate Strategy 8e, © Pearson Education 2008 6-2

 The Focus of Part 2:
Strategic Choices (2)
 The extent to which and how it seeks to
foster innovation and entrepreneurial
endeavour
 Ways in which it might pursue strategic
options in terms of organic development,
acquisitions or joint ventures
 The criteria and tools by which these
choices might be evaluated

Exploring Corporate Strategy 8e, © Pearson Education 2008 6-3

Strategic Choices
6: Business-Level Strategy
 Learning Outcomes (1)

 Identify strategic business units (SBUs) in

organisations
 Explain bases of achieving competitive
advantage in terms of ‘routes’ on the
strategy clock
 Assess the extent to which these are likely
to provide sustainable competitive
advantage

Exploring Corporate Strategy 8e, © Pearson Education 2008 6-5

 Learning Outcomes (2)

 Identify strategies suited to hyper-

competitive conditions
 Explain the relationship between
competition and collaboration
 Employ principles of game theory in relation
to competitive strategy

Exploring Corporate Strategy 8e, © Pearson Education 2008 6-6

 Exhibit 6.1 Business-Level Strategies

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 What is a
Strategic Business Unit?

A strategic business unit (SBU)

is a part of an organisation for
which there is a distinct external
market for goods or services that is
different from another SBU.

Exploring Corporate Strategy 8e, © Pearson Education 2008 6-8

 Exhibit 6.2
The Strategy Clock

Exploring Corporate Strategy 8e, © Pearson Education 2008 6-9

 Route 1: No Frills Strategy

 Low price combined with low perceived

product benefits focusing on price-
sensitive market segments
 Commodity markets
 Price-sensitive customers
 High power, low switching costs among buyers
 Opportunity to avoid major competitors

Exploring Corporate Strategy 8e, © Pearson Education 2008 6-10

 EasyJet’s No Frills Strategy (1)

Exploring Corporate Strategy 8e, © Pearson Education 2008 6-11

 EasyJet’s No Frills Strategy (2)

Upon what are the bases for

easyJet’s ‘no frills’ strategy?
How easy would it be for larger
airlines such as BA to imitate the
strategy?
On what bases could other low-price
airlines compete with easyJet?

Exploring Corporate Strategy 8e, © Pearson Education 2008 6-12

 Route 2: Low-Price Strategy

 Lower price than competitors while offering

similar product benefits
 Pitfalls
Margin reductions
Inability to reinvest

Exploring Corporate Strategy 8e, © Pearson Education 2008 6-13

 Morrison’s Low Price Strategy

Exploring Corporate Strategy 8e, © Pearson Education 2008 6-14

 Route 3: Hybrid Strategy

 Seeks to simultaneously achieve

differentiation and low price relative to
competitors
 Advantageous when
 Greater volumes can be achieved
 Cost reductions outside differentiated activities
are available
 Used as an entry strategy

Exploring Corporate Strategy 8e, © Pearson Education 2008 6-15

 Route 4: Differentiation Strategy

 Seeks to provide products that offer

benefits that differ from those offered by
competitors
 Dependent upon
Identifying and understanding strategic
customer needs
Identifying key competitors’ strategies

Exploring Corporate Strategy 8e, © Pearson Education 2008 6-16

 Route 5: Focused Differentiation

 Seeks to provide high perceived product benefits,

justifying price premiums
 Key issues
 Choice between focus strategy and broad
differentiation
 Tensions between focus strategy and other
strategies
 Market changes

Exploring Corporate Strategy 8e, © Pearson Education 2008 6-17

 Routes 6-8: Failure Strategies
 6 – Increase prices without increasing
service/product benefits
 7 – Reduction in product/service benefits
with increase in relative price
 8 – Reduction in benefits whilst
maintaining price

Exploring Corporate Strategy 8e, © Pearson Education 2008 6-18

 Exhibit 6.3 Sustaining
Competitive Advantage

Price-based
Differentiation
strategies

Sustainable
competitive
advantage

Lock-in

Exploring Corporate Strategy 8e, © Pearson Education 2008 6-19

 Achieving Low Prices

Operate with lower Develop a unique

margins cost structure

Create efficiency in Focus on market

organisational segments with
capabilities low expectations

Exploring Corporate Strategy 8e, © Pearson Education 2008 6-20

 Ryanair

Exploring Corporate Strategy 8e, © Pearson Education 2008 6-21

 Dangers of Low Price Strategies

Competitors might follow suit

Customers associate low price with
low benefits
Cost reductions may result in inability
to pursue differentiation strategy

Exploring Corporate Strategy 8e, © Pearson Education 2008 6-22

 Ways of attempting to Sustain
Advantage through Differentiation

Create difficulties Create a situation

of imitation of imperfect mobility

Establish a lower
cost position

Exploring Corporate Strategy 8e, © Pearson Education 2008 6-23

 Yellow Tail

Exploring Corporate Strategy 8e, © Pearson Education 2008 6-24

 Establishing Strategic Lock-In

Size or market First-mover

dominance dominance

Insistence on
Self-reinforcing preservation
commitment of position

Exploring Corporate Strategy 8e, © Pearson Education 2008 6-25

 Exhibit 6.5 Competitive Strategies
in Hypercompetitive Conditions

Exploring Corporate Strategy 8e, © Pearson Education 2008 6-26

 Exhibit 6.6 Competition
and Collaboration

Exploring Corporate Strategy 8e, © Pearson Education 2008 6-27

 What is Game Theory?

Game theory is concerned with the

interrelationships between the
competitive moves of a set of
competitors.

Exploring Corporate Strategy 8e, © Pearson Education 2008 6-28

 Exhibit 6.7 A Prisoner’s Dilemma

Exploring Corporate Strategy 8e, © Pearson Education 2008 6-29

 Case Example: Madonna

 Describe and explain Madonna’s

competitive strategy.
 Why has she experienced sustained
success?

Exploring Corporate Strategy 8e, © Pearson Education 2008 6-30