5-1© 2006 by Nelson, a division of Thomson Canada Limited. Business-Level Strategy Chapter Five

5-2© 2006 by Nelson, a division of Thomson Canada Limited. Key Issues of Business-level Strategy What good or service to offer customers.What good or service to offer customers. How to manufacture or create the good or service.How to manufacture or create the good or service. How to distribute the good or service in the marketplace.How to distribute the good or service in the marketplace.

5-3© 2006 by Nelson, a division of Thomson Canada Limited. The Central Role of Customers In selecting a business-level strategy, the firm determines 1. Who it will serve. 2.What needs those target customers have that it will satisfy. 3.How those needs will be satisfied.

5-4© 2006 by Nelson, a division of Thomson Canada Limited. Breadth of Competitive Scope Broad Target Market Narrow Target Market Focused Differentiation Cost Leadership Differentiation Focused Cost Leadership Source of Competitive Advantage CostUniqueness Generic Business Level Strategies

5-5© 2006 by Nelson, a division of Thomson Canada Limited. 1 Determine and Control Cost Drivers New distribution channel New advertising media Direct sales in place of indirect sales Alter production process Change in automation New raw material Forward integration Backward integration Alter location relative to suppliers or buyers 2 Reconfigure the as neededValue Chain How to Obtain a Cost Advantage

5-6© 2006 by Nelson, a division of Thomson Canada Limited. Dramatic technological change could take away your cost advantage. Competitors may learn how to imitate Value Chain. Focus on efficiency could cause Cost Leader to overlook changes in customer preferences. Major Risks of Cost Leadership Business Level Strategy

5-7© 2006 by Nelson, a division of Thomson Canada Limited. Differentiation strategy “An integrated set of actions designed by a firm to produce or deliver goods or services that customers perceive as being different in ways that are important to them.”

5-8© 2006 by Nelson, a division of Thomson Canada Limited. Customers may decide that the differentiation between the differentiator’s product and the cost leaders price is too large. A firm’s means of differentiation may cease to provide value for which customers are willing to pay. The means of uniqueness may no longer be valued by customers. Major Risks of a Differentiation Business Level Strategy

5-9© 2006 by Nelson, a division of Thomson Canada Limited. Focus Strategies Focus strategies are an integrated set of actions designed to produce or deliver goods or services that serve the needs of a particular competitive segment.

5-10© 2006 by Nelson, a division of Thomson Canada Limited. However... Opportunities may exist because:  Firm may lack resources to compete industry wide.  Large firms may overlook small niches.  The firm may be able to serve a narrow market segment more effectively than industry wide competitors.  Focus can allow you to direct resources to certain value chain activities to build competitive advantage. Focused Business Level Strategies Focused Business Level Strategies involve the same basic approach as Broad Market Strategies. *

5-11© 2006 by Nelson, a division of Thomson Canada Limited. Firm may be “out focused” by competitors. Large competitor may set its sights on your niche market. Preferences of niche market may change to match those of broad market. Major Risks Involved With a Focused Differentiation Business Level Strategy

5-12© 2006 by Nelson, a division of Thomson Canada Limited. Breadth of Competitive Scope Broad Target Market Narrow Target Market Focused Differen- tiation Cost Leadership Differen- tiation Focused Cost Leadership Source of Competitive Advantage CostUniqueness Integrated Low Cost/ Differentiation Generic Business Level Strategies

5-13© 2006 by Nelson, a division of Thomson Canada Limited. Recognize that the Integrated Low Cost/ Differentiation business level strategy involves a Compromise. The risk is that the firm may become “Stuck in the Middle” lacking a strong commitment to or expertise with either type of generic strategy. Integrated Low Cost/Differentiation