Business Level Strategy

Business-Level Strategy Developing a firm-specific business model that will allow a company to gain competitive advantage over its rivals in a market or industry Customers’ needs (what is to be satisfied?) Customer groups (who is to be satisfied?) Distinctive competencies (how customers’ need will be satisfied)

Generic Business-Level Strategies

Dynamics

Cost Leadership Strategy Cost-leadership strategy success is achieved mainly through an emphasis on efficiency. Suitable for commodity and volume based industries such as steel, airlines (Levi example)

Success is affected by: Competitors producing at equal or lower costs. The bargaining strength of suppliers. Powerful buyers demanding lower prices. Substitute products moving into the market. New entrants overcoming entry barrier.

Differentiation Strategy Differentiation strategy success is achieved through an emphasis on product or service quality, innovation in providing new features, responsiveness to customers and appealing to the psychological desires of customers. Applicable to many industries such as beverage, furniture, chemicals etc. (American Express example)

Success is affected by: Competitors imitating features and services. Increases in supplier costs exceeding differentiator’s price premium. Buyers becoming less brand loyal. Substitute products adding similar features. New entrants overcoming entry barriers related to differentiator’s competitive advantage.

Cost Leadership and Differentiation Using robots and flexible manufacturing cells reduces costs while producing different products Standardizing component parts used in different end products can achieve economies of scale Limiting customer options reduces production and marketing costs JIT inventory can reduce costs and improve quality and reliability Using the Internet and e-commerce can provide information to customers and reduce costs Low-cost and differentiated products are often both produced in countries with low labor costs (Toyota example)

Focus Strategy Focus strategy is achieved through a focus on one or a limited number of market segments. Suitable for fragmented and specialized industries such as restaurant,real estate and consulting services (SCT vs EDS case in local government)

Success is affected by: Competitor entry into focuser’s market segment. Suppliers capable of increasing costs affecting only the focuser. Buyers defecting from market segment. Substitute products attracting customers away from focuser’s segment. New entrants overcoming entry barriers that are the source of the focuser’s competitive advantage.

Business-Level Strategy: Stuck in the Middle Companies that do not do the planning necessary for success in their chosen strategy Product and market choices that have not been able to obtain or sustain competitive advantage Successful generic competitive strategy: Product, market, and distinctive competency decisions must result in a business-level strategy that leads to competitive advantage and superior profitability The environment and competition must be monitored constantly in order to stay in tune with changes (Holiday Inn example)

Product/Market/Distinctive-Competency Choices and Generic Competitive Strategies

Major Factors Affecting Strategic Choice and Investment Nature of Industry and Life Cycle Effects Nature of industry: e.g. degree of concentration An industry’s life cycle: Embryonic, growth, shakeout, maturity and decline. Competitive position First mover advantage: benefits are first choice of customers and suppliers, setting standards, building entry barriers. But is it sometimes better to be a fast second mover? Market share is an indicator of competitive strength. Resources (human, functional, and financial) and capabilities Strategic group membership

Investment Strategy at the Business Level

Competitive Positioning: Game Theory Companies are players that are simultaneously making choices The potential profitability varies depending on the strategy one company selects and the strategies that its rivals select Sequential move and simultaneous move games Look forward and reason back

A Decision Tree for UPS’s Pricing Strategy

A Payoff Matrix for GM and Ford

Class Exercises Australian auction Find a strategy for a restaurant E*Trade case