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Strategic Management

This document discusses business level strategies, including three generic strategies that firms can pursue: overall cost leadership, differentiation, and focus. For overall cost leadership, firms aim to have the lowest costs in their industry. Examples given are McDonald's and Walmart. Key tactics include efficient facilities and tight cost controls. Pitfalls include overfocus on costs and erosion of advantages. For differentiation, firms create unique products or services that customers will pay a premium for. Examples are BMW, Apple, and American Express. Firms must integrate differentiation throughout their value chain. Pitfalls include uniqueness that does not provide value or dilution of brand identity. The focus strategy targets narrow market segments. Firms pursue either cost advantages or differentiation

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Dhushor Salim
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124 views6 pages

Strategic Management

This document discusses business level strategies, including three generic strategies that firms can pursue: overall cost leadership, differentiation, and focus. For overall cost leadership, firms aim to have the lowest costs in their industry. Examples given are McDonald's and Walmart. Key tactics include efficient facilities and tight cost controls. Pitfalls include overfocus on costs and erosion of advantages. For differentiation, firms create unique products or services that customers will pay a premium for. Examples are BMW, Apple, and American Express. Firms must integrate differentiation throughout their value chain. Pitfalls include uniqueness that does not provide value or dilution of brand identity. The focus strategy targets narrow market segments. Firms pursue either cost advantages or differentiation

Uploaded by

Dhushor Salim
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Q1. What is Strategy? What are the various types of business level strategy?

Business level Strategy: A strategy design for a firm or a division of firms that
competes within a single business.
Generic Strategy: An analysis of business strategy into basic types based on breadth
of target market and type of competitive advantage.

Types: Three generic strategies to overcome the five forces and achieve competitive
advantage:
1. Overall cost leadership: Low-cost-position relative to a firms peers, Manage
relationships throughout the entire value chain. Example: Companies pursuing an
overall cost leadership strategy
-

McDonalds

Wal-Mart

2. Differentiation: Create products and/or services that are unique and valued, Nonprice attributes for which customers will pay a premium. Example: Companies pursuing
a differentiation strategy
-

Harley Davison

Apple

3. Focus strategy: Narrow product lines, buyer segments, or targeted geographic


markets, Attain advantages either through differentiation or cost leadership. Example:
Companies pursuing a focus strategy
-

Rolex

Lamborghini

Integrated tactics of Overall Cost Leadership:

Aggressive construction of efficient-scale facilities

Vigorous pursuit of cost reductions from experience

Tight cost and overhead control

Avoidance of marginal customer accounts

Cost minimization in all activities in the firms value chain, such as R&D, service,
sales force, and advertising.

Q.2 Value-Chain Activities: Overall Cost Leadership

A firm following an overall cost leadership position


-

Must attain parity on the basis of differentiation relative to competitors

Parity on the basis of differentiation

Permits a cost leader to translate cost advantages directly into higher profits than
competitors

Allows firm to earn above-average profits

Overall Cost Leadership: Improving Competitive Position vis--vis the Five


Forces
An overall low-cost position

Protects a firm against rivalry from competitors

Protects a firm against powerful buyers

Provides more flexibility to cope with demands from powerful suppliers for input
cost increases

Provides substantial entry barriers from economies of scale and cost advantages

Puts the firm in a favorable position with respect to substitute products

Pitfalls of Overall Cost Leadership Strategies:


Too much focus on one or a few value-chain activities: Too often managers make big

cuts in operating expenses, but dont question year-to-year spending on capital projects.

Should explore all value-chain activities as candidates for cost reductions

All rivals share a common input or raw material: Vulnerable to price increases.

The strategy is imitated too easily:

A lack of parity on differentiation: To attain advantage, must obtain level of differentiation.


Can be achieved by reputation, quality, through signaling mechanisms.

Erosion of cost advantages when the pricing information available to customers


increases

Q3. Differentiation can take many forms


-

Prestige or brand image- BMW automobile, Rolex Watches.

Technology- Martin Guitars

Innovation- Apple Ipads

Features- Honda Gold wing Motorcycle

Customer service- American Express

Dealer network- Lexus Automobile

Design- Bang, Diesel Blue jeans

Value-Chain Activities: Differentiation

Firms may differentiate along several dimensions at once

Firms achieve and sustain differentiation and above-average profits when price
premiums exceed extra costs of being unique

Successful differentiation requires integration with all parts of a firms value chain

An important aspect of differentiation is speed or quick response

Differentiation: Improving Competitive Position via the Five Forces


Differentiation
-

Creates higher entry barriers due to customer loyalty

Provides higher margins that enable the firm to deal with supplier power

Reduces buyer power because buyers lack suitable alternative

Reduces supplier power due to prestige associated with supplying to highly


differentiated products

Establishes customer loyalty and hence less threat from substitutes

Potential Pitfalls of Differentiation Strategies:

Uniqueness that is not valuable: Must be unique and possess high customer value.

Too much differentiation: Firms may strive for too much quality.

Too high a price premium: Customers may desire product, but repelled by price.

Differentiation that is easily imitated:

Dilution of brand identification through product-line extensions: Increase short-term


revenues, detrimental in long run.

Perceptions of differentiation may vary between buyers and sellers: Beauty is in the
eye of the beholder

3. Focus: Focus is based on the choice of a narrow competitive scope within an


industry

Firm selects a segment or group of segments (niche) and tailors its strategy to serve
them

Firm achieves competitive advantages by dedicating itself to these segments


exclusively

-Two variants

Cost focus: Strives to create a cost advantage in its target segment

Differentiation focus: Seeks differentiate in target market

Pitfalls of Focus Strategies

Erosion of cost advantages within the narrow segment

Focused products and services still subject to competition from new entrants and
from imitation

Focusers can become too focused to satisfy buyer needs

Q5. Industry Life-Cycle Stages Strategic Implications?


Life cycle of an industry:

Introduction

Growth

Maturity

Decline
Emphasis on strategies, functional areas, value-creating activities, and overall
objectives varies over the course of an industry life cycle.

Stages of the Industry Life Cycle:

i. Introduction Stage: The 1st stage of the ILC characterized by


-

New product that are not known to customers,


Poorly defined market segments
Unspecified product features
Low sales growth
Rapid technological change
Operating Losses

ii. Growth Stage: Its characterized by


Strong increases in sales
Growing Competition
Developing brand recognition
A need for financing complementary value chain activities such as marketing, sales,
customers services
iii. Maturity Stage: Characterized by
-

- Slowing Demand growth


- Saturated markets
- Direct Competition
- Price Competition
- Strategic Emphasis
iv. Decline Stage:
-

Falling sales and profit


Increasing price competition
Industry consolidation

Strategies in the Decline Stage:

i. Maintaining: Refers to keeping a product going without significantly reducing


marketing support, technological development or other investment, in the hope that
competitors will eventually exit the market.
ii. Harvesting: A strategy of wringing as much profit as possible out of a business in the
short to medium term by reducing costs.
iii. Exiting the market: It involves dropping the product from a firms portfolios. Since
residual core of consumers exist, eliminating it should be carefully considered.
iv. Consolidation: A firms acquiring or merging with other firms in an industry in order
to enhance market power and gain valuable assets.
Q4. Explain the Dimensions and pitfalls of cost leadership and differentiation.

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