1. STRATEGIC MANAGEMENT BUSINESS-LEVEL STRATEGIES Prof. Dr. Kemal BİRDİR

2. INTRODUCTION This chapter provides an in-depth account of business-level strategies that are critical for a firm’s success in its product-service market domains. It’s important to understand what factors must be taken into consideration during strategy formulation and their roles in guiding the organization toward success. This chapter provides a detailed account of what constitues a good strategy and describes positioning and generic strategies and their roles in creating a sustainable competitive advantage.

3. STRATEGY AND BUSINESS-LEVEL STRATEGY Strategy: Increasingly important to a firm’s success and concerned with making choices among two or more alternatives. Choices dictated by -External environment -Internal resources, capabilities and core competencies Business-level strategy: Integrated and coordinated set of commitments and actions the firm uses to gain a competitive advantage by exploiting core competencies in specific product markets. -Purpose To create differences between position of a firm and its competitors

4. THE PARAMETERS OF COMPETITIVE STRATEGY Competitive strategies define a firm’s position in relation to its competitors in a given market. These strategies enable a firm to develeop its market position while being able to create a sustainable competitive advantage. Competitive advantage is defined as the above-average profits a firm is able to generate from its business operations when compared to its competition or competitive set. Competitive set refers to all of the firms in a given market/segment that compete directly against one another.

5. SUSTAINABILITY OF COMPETITIVE ADVANTAGE

6. GENERIC STRATEGIES Business-level strategies are referred to as generic strategies, as firms based in any industry, regardless of the products and services they produce and the product- markets they serve, are able to pursue them. There are five generic strategies that are used to help organizations establish a competitive advantage over industry rivals. Firms may also choose to compete across a broad market or a focused market.

7. GENERIC STRATEGIES

8. COST LEADERSHIP STRATEGY Organizations compete for a wide customer based on price. Price is based on internal efficiency in order to have a margin that will sustain above average returns and cost to the customer so that customers will purchase your product/service. Works well when product/service is standardized, can have generic goods that are acceptable to many customers, and can offer the lowest price. Continuous efforts to lower costs relative to competitors is necessary in order to successfully be a cost leader. This can include: - Building state of art efficient facilities (may make it costly for competition to imitate) -Maintain tight control over production and overhead costs -Minimize cost of sales, R&D, and service.

9. COST LEADERSHIP STRATEGY Competitive risks of the cost leadership strategy -Source of cost advantage becomes obsolete -Focus on cost may cause the firm to overlook important customer preferences -Imitation

10. DIFFERENTIATION STRATEGY Value is provided to customers through unique features and characteristics of an organization's products rather than by the lowest price. This is done through high quality, features, high customer service, rapid product innovation, advanced technological features, image management, etc. Create Value by: -Lowering Buyers' Costs – Higher quality means less breakdowns, quicker response to problems. -Raising Buyers' Performance – Buyer may improve performance, have higher level of enjoyment. -Sustainability – Creating barriers by perceptions of uniqueness and reputation, creating high switching costs through differentiation and uniqueness.

11. DIFFERENTIATION STRATEGY Competitive risks of the differentiation strategy -Customer determine that the cost of differentiation is too great -The means of differentiation may cease to provide value for which customers are willing to pay -Experience can narrow customers’ perceptions of the value of a product’s differentiated features -Counterfeiting

12. FOCUS STRATEGY There are two focus strategy. a) Focused Low Cost- Organizations not only compete on price, but also select a small segment of the market to provide goods and services to. b) Focused Differentiation - Organizations not only compete based on differientation, but also select a small segment of the market to provide goods and services.

13. FOCUS STRATEGY Risks of the focus strategy -A competitor may be able to focus on a more narrowly defined competitive segment and ‘outfocus’ the focuser. -A company competing on an industry-wide basis may decide that the market segment served by the focus strategy firm is attractive and worthy of competitive pursuit -Customer needs within a narrow competitive segment may become more similar to those of industry-wide customer as a whole

14. USING AN INTEGRATED LOW- COST/DIFFERENTIATION STRATEGY This new strategy may become more popular as global competition increases. Firms that use this strategy may see improvement in their ability to: -Adaptability to environmental changes. -Learn new skills and technologies -More effectively leverage core competencies across business units and products lines which should enable the firm to produce produces with differentiated features at lower costs. However, organizations that choose this strategy must be careful not to: becoming stuck in the middle i.e., not being able to manage successfully the five competitive forces and not achieve strategic competitiveness. Must be capable of consistently reducing costs while adding differentiated features.