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BUSINESS-LEVEL STRATEGY AND THE INDUSTRY ENVIRONMENT

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Presentation on theme: "BUSINESS-LEVEL STRATEGY AND THE INDUSTRY ENVIRONMENT"— Presentation transcript:

1 BUSINESS-LEVEL STRATEGY AND THE INDUSTRY ENVIRONMENT
Chapter 6 BUSINESS-LEVEL STRATEGY AND THE INDUSTRY ENVIRONMENT

2 Learning Objectives Explain why managers tailor their business models to existing conditions Identify strategies managers use to increase profitability in fragmented industries Discuss special problems in embryonic & growth industries Understand competitive dynamics in mature industries Outline strategies managers use in declining industries 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

3 “All men can see these tactics whereby I conquer but what none can see is the strategy out of which victory evolves.” - Sun Tzu 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

4 Industry Environment Need to continually formulate/implement business-level strategies to sustain competitive advantage over time. Different environments present different opportunities and threats. Business model/strategies have to change to meet environment. Face challenges developing/maintaining a competitive strategy in: Fragmented Industries • Mature Industries Embryonic Industries • Declining Industries Growth Industries 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

5 Reasons for Fragmented Industries
“...composed of a large number of small and medium-sized companies.” Low barriers to entry Low entry barriers permit constant entry by new companies Specialized customer needs require small job lots Diseconomies of scale 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

6 Consolidating Fragmented Industry
2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

7 Strategies for Fragmented Industries
Chaining– linked outlets to achieve cost leadership Franchising- rapid growth with proven business concepts, reputation, management skills and economies of scale Horizontal Merger – acquisition to obtain economies/growth IT/Internet- develop new business models 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

8 Embryonic and Growth Industries
Embryonic- just beginning to develop when technological innovation creates new market or product opportunities. Growth- first-time demand is expanding rapidly as many new customers enter market. Companies must understand factors that affect a market’s growth rate – in order to tailor the business model to the changing industry environment. 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

9 Market Characteristics: Embryonic/Growth Industries
Reasons for Slow Growth: Limited performance and poor quality of the first products Customer unfamiliarity with what the new product can do for them Poorly developed distribution channels Lack of complementary products High production costs 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

10 Market Characteristics: Embryonic/Growth Industries
Mass Markets Develop When: Technological progress makes product easier to use and increases its value to the average customer. Key complementary products are developed that do the same. Companies find ways to reduce production costs allowing them to lower prices. 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

11 Market Development and Customer Groups
Figure 6.2 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

12 Market Share of Customer Segments
Market demand/profits rise in early/late majority segments. Figure 6.3 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

13 Innovators & Early Adopters Are:
Technologically sophisticated and tolerant of engineering imperfections Typically reached through specialized distribution channels Relatively few in number and not particularly price-sensitive 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

14 Crossing the Chasm Companies must:
Correctly identify needs of first wave of early majority users. Alter business model in response. Alter value chain & distribution channels to reach early majority. Design product to meet needs of early majority so product can be modified, produced, & provided at low cost. Anticipate moves of competitors. 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

15 The Chasm: AOL and Prodigy
Figure 6.4 Business models to compete in embryonic market populated by early innovators very different than to compete in high-growth mass market populated by early majority. 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

16 Strategic Implications of Market Growth Rates
Different markets develop at different rates. Growth rate measures rate industry’s product spreads. Growth rates for products accelerate over time: Use of mass media • Low-cost mass production Factors affecting market growth rates: Relative advantage • Complexity Compatibility • Observability Availability of • Trialability complementary products 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

17 Business-Level Strategy
Business-level strategy is a major determinant of industry profitability. The choice of business model and strategies can accelerate or retard market growth. 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

18 Crucial Factors of Investment Strategy
Competitive advantage of company’s business model Stage of the industry life cycle 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

19 Stages of Life Cycle Embryonic– share building
Distinctive competencies/competitive advantage Capital to develop R&D &sales/service competencies Growth– maintain competitive position Strengthen business model to survive shakeout Investment to keep up with growth Shakeout– competition is strongest Invest in share-increasing strategy Weak companies should invest in harvest strategy Maturity– defend business model Dominant companies reap ROI Investment depends on competition & source advantage 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

20 Mature Industries “...dominated by a small number of large companies whose actions are so highly interdependent that success of one company’s strategy depends on the response of its rivals.” 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

21 Mature Industries Evolution
Consolidate due to fierce competition in shakeout Strategy based on established companies collectively reduce strength competition Interdependent companies protect industry profitability. Strategies Deter entry Product proliferation  Maintain Price cutting excess capacity Manage rivalry Price signaling  Capacity control Price leadership  Nonprice competition 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

22 Strategies for Deterring Entry of Rivals
Figure 6.5 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

23 Product Proliferation in the Restaurant Industry
Figure 6.6 Where product spaces have been filled, difficult for new company to gain foothold in market and differentiate itself. 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

24 Strategies for Managing Industry Rivalry
Figure 6.7 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

25 Nonprice Competitive Strategies
Figure 6.8 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

26 Toyota’s Product Lineup
Toyota used market development to become a broad differentiator and developed a vehicle for almost every main segment of the car market. Figure 6.9 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

27 Declining Industries “...one in which market demand has leveled off or is falling and the size of total market starts to shrink. Competition tends to intensify and industry profits tend to fall.” 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

28 Factors of Intensity of Competition in Declining Industries
Figure 6.10 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

29 Declining Industries Strategies
Leadership – seeks to become dominant player Niche – focuses on pockets of demand declining more slowly Harvest – optimizes cash flow Divestment – sells business to others 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

30 Strategy Selection in a Declining Industry
Determined by: Severity of the industry decline Strength relative to pockets of demand Figure 6.11 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.


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