2/27/2025

Strategic Management
WEEK 4

Generic Business
Level Strategies

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Value Based Strategies

Willingness to pay
Buyer’s share

Price

Value Created Firm’s share

Cost

Supplier’s share
Opportunity Cost

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Business Strategy
Business strategy determines a firm’s business model
Managers make choices regarding
◦ What should be my unique customer value proposition (CVP)
◦ Target customer need
◦ Value offering to the target customer segment
◦ How to offer a superior value offering than the competitor to gain larger
market share
◦ Where and how to invest to develop distinctive competencies

Determines the functional level strategies the firm must pursue

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Generic Strategies

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Low-Cost Leadership
Firm’s ability to provide product/service at a lower price
than competitors
◦ Acquire substantial cost advantage
1. Pass it on to customers in form of low prices
◦ Gain market share
◦ Exploit economies of scale and experience curve effects
2. Earn higher profits by selling at the going price
◦ Usually sell a product that appeals to an “average” customer in a broad
target market

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Approaches to Securing a Cost

Advantage
 Approach 1
Do a better job than rivals of performing value chain activities
efficiently and cost effectively

 Approach 2
Reconfigure the value chain to bypass cost-producing activities that add
little value from the buyer’s perspective

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Approach 1: Controlling the

Cost Drivers
 Building efficient scale facilities
 Tightly controlling production costs and overhead
 Minimizing costs of sales, R&D and service
 Capture learning and experience curve effects
 Manage costs of key resource inputs
 Consider linkages with other activities in value chain
 Monitoring costs of activities provided by outsiders
 Simplifying production processes

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Value Chain of a Cost Leader

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Approach 2: Reconfiguring the

Value Chain
 Cutting out distributors and dealers by selling directly to customers
 Shift to e-business technologies and use of Internet
 Simplify product design
 Shift to a simpler, less capital-intensive, or more flexible technological
process
 Relocate facilities closer to suppliers or customers
 Let customers do some activities

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When does a Low-Cost Leadership

Strategy works best?
 Price competition among rival sellers is vigorous
 The products of rival sellers are essentially identical and readily
available from many eager sellers
 It is difficult to achieve product differentiation in ways that have value
to buyers
 Most buyers use the product in the same ways
 Buyers incur low costs in switching their purchases from one seller to
another

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Pitfalls to Avoid in Pursuing a Low-

Cost Strategy
 Higher unit sales and market shares do not automatically translate
into higher profits
 Relying on cost reduction approaches that can be easily copied by
rivals
 Becoming too fixated on cost reduction

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Differentiation Strategies
Incorporate differentiating features that cause buyers to prefer firm’s
product or service over brands of rivals
Differentiating features should be such that
◦ Buyers perceive them as valuable and are willing to pay for
◦ Rivals find them hard to match or copy
◦ Can be incorporated at a cost well below the price premium that buyers will
pay

Build Competitive Advantage through

◦ Command a premium price and/or
◦ Increase unit sales and/or
◦ Build brand loyalty

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How to Achieve a Differentiation-

Based Advantage
 Approach 1

Incorporate product features/attributes that lower buyer’s overall costs of using product

 Approach 2
Incorporate features/attributes that raise the performance a buyer gets out of the product
 Approach 3

Incorporate features/attributes that enhance buyer satisfaction in noneconomic or intangible

ways

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Value Chain for a Differentiator

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When does a Differentiation

Strategy works best?
 Buyer needs and uses of the product are diverse
 There are many ways to differentiate the product or service that have
value to buyers
 Few rival firms are following a similar differentiation approach
 Technological change is fast-paced and competition revolves around
rapidly evolving product features

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Pitfalls to Avoid in Pursuing a

Differentiation Strategy
 A differentiation strategy keyed to product or service attributes that
are easily and quickly copied is always suspect
 Differentiation strategies can also falter when buyers see little value in
the unique attributes of a company’s product
 Overspending on efforts to differentiate the company’s product
offering, thus eroding profitability

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Focus Strategies
 Involve concentrated attention on a narrow piece of the
total market
 Serve niche buyers better than rivals
 Choose a market niche where buyers have distinctive
preferences, special requirements, or unique needs
 Develop unique capabilities to serve needs of target buyer
segment

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Some Niches to Focus on

 Apparel industry: Plus size clothing
 Eye care industry: Prescription sunglasses
 Cable TV Industry: Wildlife / history channel
 Automobile industry: Sports car, all terrain cars
 E-Commerce : First Cry, Hopscotch

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How to Choose a Niche?

 Big enough to be profitable and offers good growth
potential
 Not crucial to success of industry leaders
 Costly or difficult for multi-segment competitors to meet
specialized needs of niche members
 Focuser has resources and capabilities to effectively serve
an attractive niche
 Few other rivals are specializing in same niche

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Focus / Niche Strategies and

Competitive Advantage
 Approach 1
Achieve lower costs than rivals in serving the segment - Focused cost leadership
strategy
 Approach 2
Offer niche buyers something different from rivals – Focused differentiation
strategy

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Best Cost (Hybrid Strategy)

 A company must have the capability to incorporate upscale attributes
into its product offering at a lower cost than rivals.
• Appeals more to value “conscious buyers”
• And not to price conscious buyers

 Works best in markets where product differentiation is the norm,

• and an attractively large number of value-conscious buyers

 Risk of a Best-Cost Strategy

• Fight on two fronts
o Low-cost producers may be able to siphon customers away with the appeal of a lower price
o High-end differentiators may be able to steal customers away with the appeal of better
product attributes

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Strengthening a Company’s
Competitive Position
 Usually, strategies are not formulated in isolation
 Competitor’s moves, timing of such moves and scope of a
firm’s activities are important aspects
 Other facets of Business Level Strategies
• Offensive vs. Defensive moves
o Blue-Ocean Strategy
• Anticipatory vs. Tactics of engagement
• Timing of moves
o First mover vs. second mover vs. a late mover

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Competitive Maneuvers
(Tactics)
Maneuvers a business uses in combat with its rivals to address threats and help
ensure that the broader strategy is carried out successfully
◦ Offensive tactics – take initiative and control the situation
◦ Defensive tactics – protect the status quo or react to situations as they
unfold
◦ Anticipatory tactics – avoidance of head-to-head competition
◦ Tactics of engagement – actual head-to-head confrontation with rivals

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Four Categories of Tactics

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Preemption (Offensive and

Anticipatory)
Undertake some endeavor of potential strategic
importance
Pioneering
- First to form strategic alliance, first to vertically integrate,
first to cut prices

Make offensive moves to scare off would-be followers

Intimidation
- Capacity building in advance, keeping a large ‘war
(Signal)
chest’ of cash, irreversible commitments

Move offensively to secure assets, rights, or resources

that places would-be rival at a disadvantage
Capture - Patenting, buying key real estate, securing access to
key raw materials, securing dominant access to
distribution channels

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Attack (Offensive and Tactics

of engagement)
Attach strategically important aspect of rivals competitive position:
Frontal assault price, image, distribution channels, key customers etc.
Makes industry less attractive for all
Flanking Avoid head-on confrontation
maneuvers HP and IBM: HP becomes a complementor
Siege warfare Encirclement: attacking simultaneously on multiple fronts – blitz
Guerilla
Quick, hit-and-run maneuvers
warfare

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Deterrence (Defensive and

Anticipatory)
Raising structural
Raise barriers to entry
barriers
Increasing Discouraging attack in the first place by increasing challengers’ expectations of
expected a response
retaliation to Market signaling take actions that indicate your future intention – aggressive
attacks response to one, advt.
Lowering Willing to take a reduction in profits
inducements to High profits attract challengers: cut prices, publicly discuss market conditions in
attack pessimistic terms
Tacit collusion: agree on actions competitors will/will not take in order to limit
Diplomatic
head-to-head competition
peacekeeping
Splitting market into territories and agreeing not to raid

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Response (Defensive and

Tactics of engagement)
Offensive way of defending
Leapfrog past the attacker’s position by introducing new
Counterattack
generation products/services
Litigation – patent, antitrust, environmental
Fast follower If you can’t beat them, join them: copy actions of successful
(Imitation) challenger as soon as possible
Falling back, ceding ground to an attacker, while attempting to
maintain viability
Retrenchment
Xerox gave considerable market share to canon and sharp
instead of launching counterattack
Withdrawal Divestment: look for value

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The strategic square

• Defensive marketing warfare is
for market leaders
• Offensive marketing warfare is for
No.2 companies
• Flanking marketing warfare is for
smaller companies
• Guerrilla marketing warfare is for
local or regional companies

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The strategic square

DEFENSIVE WARFARE OFFENSIVE WARFARE

1. Only the market leader should 1. The main consideration is the

consider playing the defense. strength of the leader’s position
2. The best defensive strategy is the 2. Find a weakness in the leader’s
courage to attack yourself. strength and attack at that point.
3. Strong competitive moves should 3. Launch the attack on and as
always be blocked. narrow a front as possible.

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The strategic square

FLANKING WARFARE GUERRILLA WARFARE

1. A good flanking move must be 1. Find a segment of the market

made into an uncontested area. small enough to defend.
2. Tactical surprise ought to be an 2. No matter how successful you
important element of the plan. become, never act like a leader.
3. The pursuit is as critical as the 3. Be prepared to bugout at a
attack itself. moment’s notice

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TIMING A FIRM’S OFFENSIVE

AND DEFENSIVE STRATEGIC
MOVES

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Timing’s importance
◦ Knowing when to make a strategic move is as crucial as knowing what move
to make.
◦ Moving first is no guarantee of success or competitive advantage.
◦ The risks of moving first to stake out a monopoly position versus being a fast
follower or even a late mover must be carefully weighed.

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First-movers and Followers

FIRST MOVERS WHO SUCCEEDED FIRST MOVERS WHO FAILED

◦ Amazon in e-commerce ◦ Sony in VCR

◦ Apple in Smart phones ◦ Palm – in PDAs
◦ Xerox in photocopiers ◦ Docutel in automated teller machines
◦ General Electric in light bulbs ◦ NetScape in Web Browsers
◦ Polaroid in instant photography ◦ Charles Stack Online Bookstore
◦ Coca Cola in soft drinks ◦ Visicalc - Lotus 1-2-3
◦ Fedex in overnight delivery

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Conditions That Lead To First-

mover Advantages
1. When pioneering helps build a firm’s reputation and creates strong
brand loyalty
2. When a first mover’s customers will thereafter face significant
switching costs
3. When property rights protections thwart rapid imitation of the
initial move
4. When an early lead enables movement down the learning curve
ahead of rivals
5. When a first mover can set the technical standard for the industry
6. When strong network effects compel increasingly more consumers
to choose the first mover’s product or service.
7. When the early mover can pre-empt scarce resources

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Benefits of Moving First

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Pre-empting Scarce Resources

Input factors
◦ skilled human capital, natural resources

Locations
◦ prime retail locations – convenience stores, petrol pumps

Marketing and distribution channels

◦ retail shelf space, exclusive arrangement with stockists

Preemption of market positions

◦ small markets with room for a limited number of players

Preemption of consumers’ perceptual space

◦ Watsapp, Xerox, Coca-Cola

Preemptive capacity investments

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Customer Switching Costs

 Initial transaction costs
 Supplier specific learning over time
 Contractual switching costs
 Uncertainty about quality
 Compatibility

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The Potential For Late-mover

Advantages Or First-mover
Disadvantages
 When pioneering is more costly than imitating and offers
negligible experience or learning-curve benefits
• Electric vehicles
 When the products of an innovator are somewhat primitive and
do not live up to buyer expectations
• Apple’s Newton
 When rapid market evolution allows fast followers to leapfrog a
first mover’s products with more attractive next-version
products
• Bharat Pe

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The Potential For Late-mover

Advantages Or First-mover
Disadvantages
 When market uncertainties make it difficult to ascertain what
will eventually succeed
• Crypto currency
 When customer loyalty is low and first mover’s skills, know-how,
and actions are easily copied or surpassed
• Online ticket booking
 When the first mover must make a risky investment in
complementary assets or infrastructure (and these may be
enjoyed at low cost or risk by followers)
• Electric vehicle – charging stations

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To Be A First Mover Or Not

 Does market takeoff depend on complementary products or services that
currently are not available?
 Is new infrastructure required before buyer demand can surge?
 Will buyers need to learn new skills or adopt new behaviors?
 Will buyers encounter high switching costs in moving to the newly
introduced product or service?
 Are there influential competitors in a position to delay or derail the efforts
of a first mover?
When the answers to any of these questions are yes, then a company must
be careful not to pour too many resources
If the market is a winner-take-all type of market, then it may be best to
move quickly despite the risks.

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Fast Second
 A fast second company lets other companies innovate and
experiment to create new markets.
 Microsoft, AirBnB, Coca-Cola, JVC and Singer, Ford as
successful fast second firms

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BLUE OCEAN STRATEGY

“Go where profits and growth are – and where the competition isn’t”
- How to create uncontested market space and
make the competition irrelevant.

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Blue ocean vs red ocean

strategy
Red Ocean Strategy Blue Ocean Strategy
Compete in existing market space Create uncontested market space
Beat the competition Make the competition irrelevant
Exploit existing demand Create and capture new demand
Make the value-cost trade-off Break the value-cost trade-off
Align the whole system of a company’s activities with Align the whole system of a company’s activities in
its strategic choice of differentiation or low cost pursuit of differentiation and low cost

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How has easyJet addressed

these
 Which of the factors that our industry takes for granted should be
eliminated?
• In-flight meals, travel agents, connections

 Which factors should be reduced well below the industry’s standards?

• Flexibility in changing flights, prior seat selection

 Which factors should be raised well above the industry’s standards?

• Punctuality, cost

 Which factors should be created that the industry never offered?

• Ticket-less travel, refunds if late

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Four actions framework

Reduce
Which factors should be
reduced below industry
standards

Eliminate A new Create

Which factors that the value Which factors should be

industry takes for granted curve created that industry has
should be eliminated never offered

Raise
Which factors should be
raised above industry
standards

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Path to creating a Blue Ocean

Paths Head-head competition Blue Ocean creation
Industry Focus on rivals within the Look across alternative
industry industries
Example – Southwest
Airlines, Tata Nano
Strategic Group Focus on competitive Look across strategic
positioning within a group groups with a industry
Example – Toyota’s Lexus
Buyer group Focus on better serving a Redefines the industry
buyer group buyer group
Example – Canon in
photocopiers

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Path to creating a Blue Ocean

Paths Head-head competition Blue Ocean creation
Scope of product or Focus on maximizing the Looks across
service offering value of product and complementary products
service offerings within the and service offerings
bounds of its industry Example – NABI in bus
transit industry
Functional – Focus on improving price- Rethinks the functional
emotional performance within emotional orientation of its
orientation functional-emotional industry.
orientation of its industry Example - Starbucks
Time Focuses on adapting to Participates in shaping
external trends as they external trends over time
occur Example – Apple iPod

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Thank You………..

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