Scribd
Upload
255 views33 pages

Business Level Strategy

This document discusses business-level strategy and the generic strategies of overall cost leadership, differentiation, and focus. It describes the types of competitive advantage that support each generic strategy and how firms can improve their competitive position against the five competitive forces. The document also covers industry life cycles, outlining strategies that are most effective in the introduction, growth, maturity, and decline stages. Finally, it discusses combination and turnaround strategies.

Uploaded by

Angelica Pagaduan
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
255 views33 pages

Business Level Strategy

This document discusses business-level strategy and the generic strategies of overall cost leadership, differentiation, and focus. It describes the types of competitive advantage that support each generic strategy and how firms can improve their competitive position against the five competitive forces. The document also covers industry life cycles, outlining strategies that are most effective in the introduction, growth, maturity, and decline stages. Finally, it discusses combination and turnaround strategies.

Uploaded by

Angelica Pagaduan
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
You are on page 1/ 33

STRATEGY FORMULATION

BUSINESS-LEVEL STRATEGY
TYPES OF COMPETITIVE ADVANTAGE AND
SUSTAINABILITY
GENERIC STRATEGIES

- basic types of business level strategies based on breadth of target market


(industrywide versus narrow market segment) and type of competitive
advantage (low cost versus uniqueness)
TYPES OF COMPETITIVE ADVANTAGE AND SUSTAINABILITY

1. overall cost leadership- based on creating a low-cost position


2. differentiation requires a firm to create products and/or services that are unique
and valued
3. focus strategy directs attention (or “focus”) toward narrow product lines, buyer
segments, or targeted geographic markets, and they must attain advantages through
either differentiation or cost leadership
THREE GENERIC STRATEGIES
OVERALL COST LEADERSHIP

◼ a firm’s generic strategy based on appeal to the industrywide market using a competitive advantage
based on low cost
◼ SET OF INTERRELATED TACTICS
• 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 firm’s value chain, such as R&D, service, sales force, and
advertising.
OVERALL COST LEADERSHIP

◼ experience curve
- the decline in unit costs of production as cumulative output increases
▪ competitive parity
- a firm’s achievement of similarity, or being “on par,” with competitors with
respect to low cost, differentiation, or other strategic product characteristic.
VALUE-CHAIN ACTIVITIES: EXAMPLES OF OVERALL COST
LEADERSHIP
VALUE-CHAIN ACTIVITIES: EXAMPLES OF OVERALL COST
LEADERSHIP
OVERALL COST LEADERSHIP: IMPROVING COMPETITIVE POSITION
VIS-À-VIS THE FIVE FORCES 

◼ An overall low-cost position enables a firm to achieve


above-average returns despite strong competition.
POTENTIAL PITFALLS OF OVERALL COST LEADERSHIP STRATEGIES

◼ Too much focus on one or a few value-chain activities.


◼ Increase in the cost of the inputs on which the advantage is based.
◼ A strategy that can be imitated too easily.
◼ A lack of parity on differentiation.
◼ Reduced flexibility.
OBSOLESCENCE OF THE BASIS OF COST ADVANTAGE

◼ The older cost leaders are often locked into their way
of competing and are unable to respond to the newer,
lower-cost means of competing.
DIFFERENTIATION
◼ Consists of creating differences in the firm’s product or service offering by creating
something that is perceived industrywide as unique and valued by customers.
◼ Forms:
◼ Prestige or brand image (BMW automobiles)
◼ Quality (Apple)
◼ Technology (North Face camping equipment)
◼ Innovation (Tesla Motors)
◼ Features (Ducati motorcycles)
◼ Customer service (Nordstrom department stores)
◼ Dealer network (Caterpillar earthmoving equipment).
VALUE-CHAIN ACTIVITIES: EXAMPLES OF DIFFERENTIATION
VALUE-CHAIN ACTIVITIES: EXAMPLES OF DIFFERENTIATION
DIFFERENTIATION: IMPROVING COMPETITIVE POSITION VIS-À-VIS
THE FIVE FORCES

Differentiation provides protection against rivalry since brand


loyalty lowers customer sensitivity to price and raises customer
switching costs.
POTENTIAL PITFALLS OF DIFFERENTIATION STRATEGIES

◼ Uniqueness that is not valuable.


◼ Too much differentiation.
◼ Too high a price premium.
◼ Differentiation that is easily imitated.
◼ Dilution of brand identification through product-line extensions.
◼ Perceptions of differentiation that vary between buyers and sellers.
FOCUS

◼ A focus strategy is based on the choice of a narrow competitive scope within an


industry. A firm following this strategy selects a segment or group of segments and
tailors its strategy to serve them.
FOCUS: IMPROVING COMPETITIVE POSITION VIS-À-VIS THE FIVE
FORCES 

◼ Focus requires that a firm have either a low-cost position with its
strategic target, high differentiation, or both.
◼ Focus is also used to select niches that are least vulnerable to substitutes
or where competitors are weakest.
POTENTIAL PITFALLS OF FOCUS STRATEGIES

◼ Cost advantages may erode within the narrow segment.


◼ Even product and service offerings that are highly focused are subject to
competition from new entrants and from imitation.
◼ Focusers can become too focused to satisfy buyer needs.
COMBINATION STRATEGIES: INTEGRATING OVERALL LOW COST
AND DIFFERENTIATION

◼ This strategy enables a firm to provide two types of value to customers:


differentiated attributes (e.g., high quality, brand identification,
reputation) and lower prices (because of the firm’s lower costs in
value-creating activities).
INTEGRATED OVERALL LOW-COST AND DIFFERENTIATION STRATEGIES:
IMPROVING COMPETITIVE POSITION VIS-À-VIS THE FIVE FORCES

◼ Firms that successfully integrate both differentiation and cost advantages


create an enviable position.
PITFALLS OF INTEGRATED OVERALL COST LEADERSHIP AND
DIFFERENTIATION STRATEGIES

◼ Failing to attain both strategies and possibly ending up with neither,


leaving the firm “stuck in the middle.”
◼ Underestimating the challenges and expenses associated with
coordinating value-creating activities in the extended value chain.
◼ Miscalculating sources of revenue and profit pools in the firm’s industry.
INDUSTRY LIFE-CYCLE STAGES: STRATEGIC
IMPLICATIONS
INDUSTRY LIFE CYCLE

◼ refers to the stages of introduction, growth, maturity, and decline that


occur over the life of an industry.
STAGES OF THE INDUSTRY LIFE CYCLE

Gregory G. Dess, G. M.-H. (2019). Strategic Management text and cases. New York: McGraw-Hill Education.
Gregory G. Dess, G. M.-H.
(2019). Strategic Management
text and cases. New York:
McGraw-Hill Education.
STRATEGIES IN THE INTRODUCTION STAGE

◼ the first stage of the industry life cycle, characterized by: (1) new products that are
not known to customers, (2) poorly defined market segments, (3) unspecified
product features, (4) low sales growth, (5) rapid technological change, (6) operating
losses, and (7) a need for financial support
◼ Success requires an emphasis on research and development and marketing activities
to enhance awareness. The challenge becomes one of (1) developing the product and
finding a way to get users to try it and (2) generating enough exposure so the
product emerges as the “standard” by which all other rivals’ products are evaluated.
STRATEGIES IN THE GROWTH STAGE

◼ the second stage of the product life cycle, characterized by (1) strong increases in
sales; (2) growing competition; (3) developing brand recognition; and (4) a need for
financing complementary value chain activities such as marketing, sales, customer
service, and research and development.
◼ In the growth stage, the primary key to success is to build consumer preferences for
specific brands.
STRATEGIES IN THE MATURITY STAGE

◼ the third stage of the product life cycle, characterized by (1) slowing demand growth,
(2) saturated markets, (3) direct competition, (4) price competition, and (5) strategic
emphasis on efficient operations. Two positioning strategies:
◼ Reverse Positioning 
- assumes that although customers may desire more than the baseline product, they don’t
necessarily want an endless list of features
▪ Breakaway Positioning
- a product escapes its category by deliberately associating with a different one
STRATEGIES IN THE DECLINE STAGE
◼ the fourth stage of the product life cycle, characterized by (1) falling sales and
profits, (2) increasing price competition, and (3) industry consolidation.
◼ Four Basic Strategies:
◼ Maintaining refers to keeping a product going without significantly reducing marketing support,
technological development, or other investments, in the hope that competitors will eventually exit
the market
◼ Harvesting involves obtaining as much profit as possible and requires that costs be reduced
quickly.
◼ Exiting the market involves dropping the product from a firm’s portfolio.
◼ Consolidation involves one firm acquiring at a reasonable price the best of the surviving firms in
an industry.
TURNAROUND STRATEGIES

◼ A turnaround strategy involves reversing performance decline and


reinvigorating growth toward profitability.
◼ Three Strategies
◼ Asset and cost surgery
◼ Selective product and market pruning.
◼ Piecemeal productivity improvements.
END OF LESSON 2.1

◼ Gregory G. Dess, G. M.-H. (2019). Strategic Management text and cases. New York: McGraw-Hill Education.

You might also like