1. 1 Strategic Management: Concepts and Cases Part II: Strategic Actions: Strategy Formulation Chapter 4: Business-Level Strategy

2. 2 The Strategic Management Process

3. 3 Chapter 4: Business-Level Strategy Overview: Five content areas Defining business-level strategy Relationship between customers and strategy Differences in business-level strategies 5-Forces Risks of business-level strategies

4. 4 Starbucks Speaker: Rita Wong

5. 5 Starbucks basics Established in 1971 Headquarters Seattle

6. 6 1990's The demand for great coffee allows Starbucks to expand beyond Seattle, first to the rest of the United States, then further a field. 2000's The Starbucks phenomenon continues. At the time of writing, Starbucks has more than 6,000 locations in over 30 countries. 1970's The first Starbucks opens. The name comes from Herman Melville’s Moby Dick, a classic American novel about the 19th century whaling industry. 1980's Howard Schultz joins Starbucks in 1982.

7. 7 Starbucks TeaPies CakesCoffee commodities

8. 8 Starbucks 12,000 distribution

9. 9 Guidelines Starbucks built the world leader in gourmet coffee, while in the process of growing the company, always adhere to its consistent principles. Provide a sound working environment and to create mutual respect and trust work environment Uphold diversity is an important principle of our business with the highest standards of procurement baking, and to provide the freshest coffee Is a high degree of enthusiasm to meet the needs of customers Positive contribution to the community and the environment We recognize that profitability is the foundation for future success

10. 10 one person, one cup and one neighborhood at a time mission statement

11. 11 Starbucks consumer orientation white-collar class the luxury most people can afford price position

12. 12 Market Segmentation

13. 13 Discuss Do you agree to blame Starbucks for the high price? Why?

14. 14 Good Experience To say Starbucks purchases and roasts high- quality whole bean coffees is very true. That’s the essence of what we do – but it hardly tells the whole story.. Our coffeehouses have become a beacon for coffee lovers everywhere. Why do they insist on Starbucks? Because they know they can count on genuine service, an inviting atmosphere and a superb( 极好的 ) cup of expertly roasted and richly brewed coffee every time.

15. 15 Chapter 5: Business-Level Strategy Overview: Five content areas Defining business-level strategy Relationship between customers and strategy Differences in business-level strategies 5-Forces Risks of business-level strategies

16. 16 Introduction 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( 业务层战略 ): Integrated and coordinated set of commitments and actions the firm uses to gain a competitive advantage by exploiting core competencies in specific product markets

17. 17 Introduction (Cont’d) Customers are the foundation of successful business strategies Who will be served by the firm What needs those target customers have that firm will satisfy How those needs will be satisfied by the firm Five (5) generic( 通用的 ) business level strategies Generic = can be used in any organization competing in any industry Follows the discussion of customers

18. 18 Customers: Their Relationship with Business-Level Strategies Strategic competitiveness results when firm can satisfy customers by using its competitive advantages Returns earned are the lifeblood of firm Most successful companies satisfy current customers and/or meet needs of new customers Example ： Coca-Cola

19. 19 Customers: Their Relationship with Business-Level Strategies (Cont’d) …Five components in customer relationships 1. Effectively managing relationships with customers Deliver superior value Strong interactive( 交互的 ) relationships is foundation 2. Reach （可接触性）, richness （丰富性） and affiliation （密切关系） Access and connection to customers Depth and detail of two-way flow of information between firm and customer Facilitating useful interactions with customers

20. 20 Some Products of Cocacola

21. 21 Customers: Their Relationship with Business-Level Strategies (Cont’d) … Five components in customer relationships 3. Who: Determining the customers to serve Market segmentation  Dividing customers into groups based on differences in needs  Process used to cluster people with similar needs into individual and identifiable groups  For example, consumer and industrial markets

22. 22 Customers: Their Relationship with Business-Level Strategies (Cont’d) Discuss in Groups: What kind of characters can be used in Dividing customers into groups ?

23. 23 Customers: Their Relationship with Business-Level Strategies (Cont’d) …Five components of customer relationships 4. What: Determining which customer needs to satisfy What = Needs  Related to a product’s benefits and features  Must anticipate and be prepared: (I.e., High-quality? Low price?) Translate into features and performance capabilities of products 5. How: Determining core competencies necessary to satisfy customer needs Core competencies: resources and capabilities that serve as source of competitive advantage for firm over its rivals How = core competencies

24. 24 Chapter 4: Business-Level Strategy Overview: Five content areas Defining business-level strategy Relationship between customers and strategy Differences in business-level strategies 5-Forces Risks of business-level strategies

25. 25 Purpose of Business-Level (BL) Strategies Purpose: To create differences between position of a firm and its competitors Firm must make a deliberate( 深思熟虑的 ) choice to Perform activities differently Perform different activities Activity map exemplifies( 显示 ) a firm’s Activities How they are integrated Southwest Airline’s activity map: Note the primary (N=6) and secondary nodes/activities and the ‘connectedness’ or fit Fit is key to the sustainability of competitive advantage

26. 26 Southwest Airlines’ Activity System

27. 27 Purpose of Business-Level (BL) Strategies (con’t) Two types of competitive advantage firms must choose between Cost (Are we LOWER than others?) Uniqueness (Are we DIFFERENT? How?) Two types of ‘competitive scope’ firms must choose between Broad target Narrow target These combine to yield 5 different BL strategies

28. 28 Purpose of Business-Level (BL) Strategies (con’t)

29. 29 Five Business-Level Strategies

30. 30 Types of Business-Level Strategies (N=5) 1. Cost Leadership (CL) Competitive advantage: THE low-cost leader and operates with margins greater than competitors Competitive scope: Broad Integrated set of actions designed to produce or deliver goods or services with features that are acceptable to customers at the lowest cost, relative to competitors No-frill （装饰）, standardized goods Continuously reduce costs of value chain activities Inbound/outbound logistics account for significant cost Low-cost position is a valuable defense against rivals Powerful customers can demand reduced prices

31. 31 Types of Business-Level Strategies (N=5) Question for group discussion: Does the goods with low price always have low quality? Give me an example. b

32. 32 Types of Business-Level Strategies (N=5) (Cont’d) 1. Cost Leadership (CL) (Cont’d) Cost leaders are in a position to Absorb supplier price increases Force suppliers to hold down their prices Continuously improving levels of efficiency and cost reduction Can be difficult to replicate and serve as significant entry barriers to potential competitors Cost leaders hold an attractive position in terms of product substitutes, with the flexibility to lower prices to retain customers Examples: Sanjiang supermarket, Wal-Mart, Home Inn

33. 33 Group 4 Wal-Mart

34. 34 The founder Sam Walton(1918~1992) He regarded as the greatest enterpriser in 20th century.

35. 35 A part of history of Wal-Mart In 1962:Sam Walton set up the first Wal-Mart fair-price shop. In 1972:The share of Wal-Mart was listed in New York and its value turned over 4900 times during the 25 years. In 1979: Wal-Mart sales totally exceeded $1 billion for the first time. In 1990: Wal-Mart became the biggest trades company in America. In 1991: Wal-Mart opened the first overseas store in Mexico. In 1994:Wal-Mart purchased 122 woolco stores in Canada.

36. 36 The rank of Wal-Mart from top 500 2000: 2001: 2002: 2003: 2004: 2005: 2006: 2007: 2008: 2009: 2010: 2011: Rank No.1: 8 times

37. 37 Business Categories Spupercenter 1.

38. 38 Businss Categories Supercenter Connect: fresh food( 活鲜） foodstuff （食品） traditional general merchandise （传统百货业） First ： in Washington in 1988 Amount ： over 5000

39. 39 Business Categories Sam’s Club 2.

40. 40 Business Categories Sam’s Club Range: Serve for members of Sam’s Club First: in 1983 in America Amount: over 500

41. 41 More than 7000 Wal-Mart stores all over the world.

42. 42 Online Sam’s Store Website: www.samclub.cn First: in 2010 in Shenzhen Advantage: offter 24 hours shopping

43. 43 Culture Low Price Everyday!

44. 44 The reasons of success 1. Own brands 2. 3. Human resources policy Logistics and supply chain 4. 5. Brilliant Sam Walton Daily low price strategy

45. 45 Examples of Value-Creating Activities Associated with the Cost Leadership Strategy P103

46. 46 Types of Business-Level Strategies (N=5) (Cont’d) 1. Cost Leadership (CL) (Cont’d) In relationship to the 5 Forces: Rivalry against existing competitors: Rivals hesitate to compete on the basis of price Bargaining Power of Buyers (Customers) Bargaining Power of Suppliers Potential Entrants Product Substitutes

47. 47 Types of Business-Level Strategies (N=5) (Cont’d) 2. Differentiation Competitive advantage: Differentiation( 差异化 ) Competitive scope: Broad Integrated set of actions designed by a firm to produce or deliver goods or services at an acceptable cost that customers perceive as being different in ways that are important to them Target customers perceive product value Customized( 定制 ) products – differentiating on as many features as possible Examples: Apple’s iPod ， Starbucks

48. 48 Chinese company name: Apple Incorporated English company name: Apple, Inc. Established: April 1, 1976 Headquarters Location: Cupertino, California

49. 49 What can we learn 我们能够学习的 Steve Jobs 史蒂夫 乔布斯 (CEO) Timothy D. Cook 蒂 姆 · 库克 （ COO ） Peter Oppenheimer 彼得 奥本海默 （ CFO ）

50. 50 What can we learn 我们能够学习的 19842001 2007 2010 Mac ipod iphone ipad

51. 51 What can we learn 我们能够学习的 ipod ipod1ipodU2 ipod NANO5 iPod shuffle4

52. 52 Ipod NANO6 Ipod touch4

53. 53 What can we learn 我们能够学习的 iphone iphone1 iphone2 iphone3GS

54. 54 iphone iphone4s Iphone5

55. 55 Main characters 主要人物 主要人物 Company Profile 公司简介 公司简介 Corporate Culture 企业文化 企业文化Products 产品 产品 Job’s Saying 乔布斯名言 What can we learn 我们能够学习的 ipad ipad1ipad2 They look exactly the same, in fact, they have a lot of differences differences

56. 56

57. 57 So many Apple products proved to us that Apple's products lead the world in high-tech industry trend. Apple can achieve such great success, which is their CEO ----- Steve Jobs is inseparable

58. 58 His accomplishments and character helped define a generation and change the world. He is co-founder of the fairytale company we now know as Apple Computers. And he is the visionary of the personal computers world that led the entire computer hardware and software industry to restructure itself. Steve Jobs Steve Jobs （ CEO ）

59. 59 1.Innovation distinguishes between a leader and a follower 2.The only way to do great work is to love what you do. If you haven’t found it yet, keep looking. Don’t settle. As with all matters of the heart, you’ll know when you find it. 3.We’re here to put a dent in the universe. Otherwise why else even be here? Job’s Saying

60. 60 Main characters 主要人物 主要人物 Company Profile 公司简介 公司简介 Corporate Culture 企业文化 企业文化Products 产品 产品 Job’s Saying 乔布斯名言 What can we learn 我们能够学习的 Stay Hungry. Stay Foolish. ———Steve Jobs

61. 61 Examples of Value-Creating Activities Associated with the Differentiation Strategy P106

62. 62 Types of Business-Level Strategies (N=5) (Cont’d) 2. Differentiation (Cont’d) In relationship to the 5 Forces: Rivalry against existing competitors  Customers are loyal purchasers of differentiated products  I.e., Bose Bargaining Power of Buyers (Customers)  Inverse relationship between loyalty/product: As loyalty increases, price sensitivity decreases  I.e., Callaway golf clubs Bargaining Power of Suppliers  Provide high quality components, driving up firm’s costs  Cost may be passed on to customer Potential Entrants  Substantial barriers (see above) and would require significant resource investment Product Substitutes  Customer loyalty effectively positions firm against product substitutes

63. 63 Types of Business-Level Strategies (N=5) (Cont’d) There are two “Focus” strategies (# 3 and 4) In general, the firms’ core competencies used to serve the need of a particular industry segment or niche （利基） to the exclusion of others. May lack resources to compete in the broader market May be able to more effectively serve a narrow market segment than larger industry-wide competitors Firms may direct resources to certain value chain activities to build competitive advantage Large firms may overlook small niches Example ： Customized products – Barge( 游艇 ) ， Airplane

64. 64 Types of Business-Level Strategies (N=5) (Cont’d) Focus strategy examples Buyer groups Youths/senior citizens Product line segments Professional painter groups Geographic markets West vs. East coast

65. 65 Types of Business-Level Strategies (N=5) (Cont’d) 3. Focused Cost Leadership Competitive advantage: Low-cost Competitive scope: Narrow industry segment I.e., IKEA: Good design (furniture) at low prices  NOTE: Also has some differentiated features (I.e., furniture design) with its low-cost products

66. 66 Types of Business-Level Strategies (N=5) (Cont’d) 4. Focused Differentiation Competitive advantage: Differentiation Competitive scope: Narrow industry segment I.e., IKEA: Good design (furniture) at low prices  NOTE: Also has some differentiated features (I.e., Furniture design) with its low-cost products I.e., Casket furniture (products that can also be converted into caskets)

67. 67 IKEA Home furnishings

68. 68 History 1943 Sweden 17-year old Ingvar Kamprad founder's name (Ingvar Kamprad) the farm where he grew up (Elmtaryd) his home parish (Agunnaryd)

69. 69 Product Three series: Office, family, children’s IKEA Varieties: desks, tables, chairs, sofas, TV solutions, storage, lightings, decoration, beds and mattresses…… 10,000 articles

70. 70 Product Styles: simple, natural, fashion, good-quality Customers: the masses in developed countries the white-collar in developing countries

71. 71 Product the flat-pack distribution methods assembled by the consumer → reduce costs and use of packaging → a practical point

72. 72 Price Low price policy an attractive feature of IKEA low price policy is used through the processes of designing, manufacturing, sellings, and administration

73. 73 How much?

74. 74 Price

75. 75 Figure out the price before designing Use new materials, new technique The flat-pack distribution methods ( 扁平集成化的营销模式 ) Price

76. 76 Place IKEA stores in different countries. sells its products to customers directly. a symbol of life style. do purchasing enjoy a different kind of life style here.

77. 77 Promotion Free catalogues for customers Exhibition units in the stores Advertisement

78. 78 Free catalogues

79. 79 Exhibition units

80. 80 Types of Business-Level Strategies (N=5) (Cont’d) Risk of using “Focus” strategies 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 customers as a whole

81. 81 Types of Business-Level Strategies (N=5) (Cont’d) 5. Integrated CL/Differentiation (DELL) Efficiently produce products with differentiated attributes Efficiency: Sources of low cost Differentiation: Source of unique value Can adapt to new technology and rapid changes in external environment Simultaneously concentrate on TWO sources of competitive advantage: cost and differentiation – consequently… …must be competent in many of the primary and support activities Three sources of flexibility useful for this strategy

82. 82 Types of Business-Level Strategies (N=5) (Cont’d) Three flexible sources include Flexible manufacturing systems (FMS) Computer controlled process used to produce a variety of products in moderate, flexible quantities with a minimum of manual intervention Goal: eliminate ‘low cost vs. product variety, tradeoff inherent in traditional manufacturing technologies Information networks Using technology to link suppliers, distributors and customers Total Quality Management (TQM) systems Emphasizes firm’s total commitment to the customer and continuous improvement of every process through data-driven, problem-solving approaches based on empowering employees

83. 83 Chapter 4: Business-Level Strategy Overview: Five content areas Defining business-level strategy Relationship between customers and strategy Differences in business-level strategies 5-Forces Risks of business-level strategies

84. 84 Types of Business-Level Strategies (N=5) (Cont’d) Competitive Risks of Integrated Strategies Although becoming more popular the RISK is getting ‘stuck in the middle’ Cost structure is not low enough for attractive pricing of products and products not sufficiently differentiated to create value for target customer – therefore, fail to successfully implement either low cost or differentiation strategy Result: Don’t earn above-average returns