Chapter 8 McGraw-Hill/Irwin Copyright © 2011 by the McGraw-Hill Companies, Inc. All rights reserved.

Learning Objectives 1. Determine why a business would choose a low- cost, differentiation, or speed-based strategy 2. Explain the nature and value of a market focus strategy 3. Illustrate how a firm can pursue both low-cost and differentiation strategies 4. Identify requirements for business success at different stages of industry evolution 5. Determine good business strategies in fragmented and global industries 6. Decide when a business should diversify 8-3

Evaluating Differentiation Differentiation requires that the business have sustainable advantages that allow it to provide buyers with something uniquely valuable to them Differentiation usually arises from one or more activities in the value chain that create a unique value important to buyers Strategists use benchmarking and consider the 5 forces in considering differentiation 8-4

Low Cost Strategy What is a low cost strategy? 8-5

Differentiation Strategy Stouffer’s frozen food packaging and sauce technology, Apple’s control of iTunes download software that worked solely with iPods at first, American Greeting Card’s automated inventory system for retailers, and Federal Express’s customer service capabilities are all examples of sustainable advantages around which successful differentiation strategies have been built.

Diversification What is meant by diversification??

Reasons for diversification include (1) reducing risk of relying on only one or few income sources, (2) avoiding cyclical or seasonal fluctuations by producing goods or services with different demand cycles, (3) achieving a higher growth rate, and (4) countering a competitor by invading the competitor's core industry or market. In contrast to vertical integration, diversification does not increase a firm's market or monopolistic power. Also called market diversification

Diversification Can diversification increase profitability?

Diversification Diversification can increase profitability when managers leverage competencies to create business units in new industries. This is based on the idea that a source of competitive advantage in one industry may be one in another industry. Diversification can increase profitability when managers utilize product bundling. Product bundling allows a company to expand its product line and offer customers a package of related products. Diversification can increase profitability when managers use diversification to reduce rivalry in one or more industries. This may occur if entry into an industry keeps a competitor in check. Diversification can increase profitability when managers utilize general organizational competencies that increase the performance of all of a company’s business units. These competencies are found in top management and transcend businesses and may include things such as entrepreneurial skills, capabilities in organizational design, and strategic capabilities.

Diversification What is an example of a firm that has diversified with an internal new venture?

Two general types of diversification Related diversification refers to establishing a business unit in a new industry that is related to a company’s existing business units by some kind of linkage or commonality between one or more components of each business unit’s value chain. Unrelated diversification refers to the movement into new industries to capture the profit-enhancing advantages of implanting general organizational competencies in new business units, and perhaps to capture the benefits of multipoint competition.

WHAT’S DUE FOR UNIT 6 DISCUSSION QUESTION: Comparing BWM and Lincoln. These two companies compete in the same strategic group. Browse the sites and look for each company's business-level strategy. In what ways are the luxury car companies' strategies similar? In what ways are they different? Which company would you say has the competitive advantage? Why?

WHAT’S DUE FOR UNIT 6 Unit 6 ASSIGNMENT is a little different in that it should be submitted as a PowerPoint presentation. The directions are: Prepare a case study analysis, Case 7, The Apollo Group, Inc. (University of Phoenix) (PDF). Closely follow the Case Study Analysis Template by clicking on the hyperlink. Please utilize this template to help you complete this assignment. Use titles and subtitles per slide for each guidelines element. Focus upon the idea of the company's multi-business strategy through analysis that will help move The Apollo Group forward. Please include the SWOT analysis with the four quadrants on the SWOT Diagram slide. A basic PowerPoint template for this Assignment can be found in Doc Sharing. (MT460_Unit_Six_PPT_Assignment_Template.pptx). For extra help on using this template, watch the Assignment walkthrough located under the Case study tab.

QUESTIONS? COMMENTS?? CONCERNS???