Strategy Integrates STRATEGY Environment Firm The primary goal of strategy is to establish a position or sustainable competitive advantage for the firm. Customers Competitors Resources Capabilities

Business Level Strategy Addresses Three Questions How will we create value? What strategy will we use to compete? How will we create competitive advantage?

How Will We Create Value? What?Who? How? Value Abell’s Framework: Three Key Issues

What strategy will we use? Generic Strategies Low Cost Leader Differentiation Integrated Market Scope  Broad  Focused

What Strategy Will We Use? Competitive Advantage Differentiation Low Cost Market Scope Focused Broad Overall Low Cost Overall Differentiation Focused Low Cost Focused Differentiation Integrated

What Strategy Will We Use? Cost* Value* Price* Low Cost Leader

What Strategy Will We Use? Cost* Value* Price* Differentiator

What Strategy Will We Use? Cost* Value* Price* Integrated

Low Cost Leader Company produces comparable value at perceived low price Advantages  Reduces price pressure from buyers  Forces out less efficient rivals  Hard for new entrants to compete Disadvantages  Lack of Differentiation  Some methods can be easily copied  Can be eroded by factors outside of firm’s control

Low Cost Leader  Cost advantages can come from anywhere in the value chain  Need to search for all sources of cost drivers

Differentiation Company produces perceived superior value at comparable price Advantages  Rivalry is reduced  Buyers are less price-sensitive  Difficult for new entrants to copy  Unique features lessen substitutes Disadvantages  Price Too High  Distinctive Features Don’t Create Value  Distinctive Features May Be Easily Imitated  Distinction May Be Eroded By Innovation

Differentiation  Differentiation includes every aspect of the way the company relates to its customers  Need to identify activities that create value for customers

Integrated Company creates value by focusing on value creating activities and reducing costs of non-value creating activities Advantages  Most effective strategy  Provides value to two types of customers  Difficult to imitate  Forces out less efficient rivals  Hard for new entrants to compete Disadvantages  Very difficult to maintain  Risk of becoming ‘Stuck-In-The-Middle’

Integrated  Need to emphasize activities that create unique value for customers, reduce costs in areas that don’t

Focus Identify specific market segment to satisfy Market segment must be  Large and Growing  Underserved  Distinctive in needs Advantages  Allows firm to identify and satisfy needs not addressed by broad firms  Allows firm to understand and monitor needs of customers Disadvantages  Loss of cost advantage  Competition from established brands  Mass Customization

How Will We Create Competitive Advantage? Superior Quality Superior Efficiency Superior Responsiveness Superior Innovation Superior Value