1. Strategic management Business administration T.5 Business level Strategy Prof.Dr. E. Vatchkova

2. Contents J&Sh, 2002 1. Forces, influencing BS 2. The “strategy clock” 3. Sustaining competitive advantage 4. Competition and collaboration 5. Game theory 6. Competitive strategy under hypercompetitive conditions

3. What is it about? Bases of strategic choice at this level Bases of strategic choice at this level Generation of rents, superprofits, economic profit Generation of rents, superprofits, economic profit

4. Why is it important? How to compete effectively in a market? How to compete effectively in a market? How value is realized? How value is realized? To what extent is it possible to achieve competitive advantage? To what extent is it possible to achieve competitive advantage? How the investments depend on the value created by constituent business units? How the investments depend on the value created by constituent business units?

5. Bases of strategic choice at the business level The influence of: environment, capabilities, expectations The influence of: environment, capabilities, expectations Gaining competitive advantage - generic competitive strategies: price- based, differentiation, focus Gaining competitive advantage - generic competitive strategies: price- based, differentiation, focus Sustaining competitive advantage: low price advantage, differentiation, lock-in Sustaining competitive advantage: low price advantage, differentiation, lock-in Co-operative and competitive strategies Co-operative and competitive strategies Games theory and hypercompetition Games theory and hypercompetition

6. 1. “No frills” 2. Low price 3. Hybrid 4. Differentiation 5. Focused Differentiation 6. 7. 8. f ailure

7. The “strategy clock” Price-based strategy(routes1 &2) Price-based strategy(routes1 &2) The hybrid strategy (route 3) The hybrid strategy (route 3) Add value, or differentiation strategy (route 4) Add value, or differentiation strategy (route 4) Focused differentiation(route5) Focused differentiation(route5) Failure strategy (route 6,7 & 8 Failure strategy (route 6,7 & 8

8. “ NO FRILLS” STRATEGY It combines: Low price Low price Low perceived added value Low perceived added value Focus on a price sensitive market segment Focus on a price sensitive market segment Risks- likely to be segment specific

9. LOW PRICE STRATEGY Lower price for similar value Lower price for similar value Low cost base Low cost base Focusing on unattractive market segment Focusing on unattractive market segment Risk – price war low margins low margins need to be cost leader need to be cost leader

10. HYBRID STRATEGY Low cost base, reinvestment in low price and differentiation Low cost base, reinvestment in low price and differentiation Entry strategy market segment, facilitating low-price approach Entry strategy market segment, facilitating low-price approach Core competencies, on which differentiation can be built Core competencies, on which differentiation can be built Greater volumes achieved, margins kept because of low cost price Greater volumes achieved, margins kept because of low cost price

11. DIFFERENTIATION STRATEGY (with or without price premium) Uniqueness or improvements in products Uniqueness or improvements in products Marketing – based approach Marketing – based approach Competence-based approach Competence-based approach

12. Focused differentiation Perceives added value to a particular segment Perceives added value to a particular segment Warranting price premium Warranting price premium

13. LOCK-IN STRATEGY The organization has achieved a proprietary position in its industry The organization has achieved a proprietary position in its industry It has become an industry standard It has become an industry standard Microsoft, IBM…

14. Ultimate failure strategies Increased price/standard value Increased price/standard value Higher margins if competitors do not follow Higher margins if competitors do not follow Risk of loosing market share Risk of loosing market share Increased price/low value Increased price/low value Feasible only in monopoly situation Feasible only in monopoly situation Low values/standard price Low values/standard price Loss of market share Loss of market share

15. COLLABORATION STRATEGY Buyer-seller Buyer-seller To increase buying power To increase buying power To build barriers to entry or avoid substitution To build barriers to entry or avoid substitution To gain entry and competitive power To gain entry and competitive power To share work with customers To share work with customers

16. GAMES THEORY THE STRATEGIST IS TO ANTICIPATE THE REACTIONS OF OTHERS THE STRATEGIST IS TO ANTICIPATE THE REACTIONS OF OTHERS COMPETITORS WILL BEHAVE RATIONALLY COMPETITORS WILL BEHAVE RATIONALLY INTERDEPENDANT RELATIONSHIP OF COMPETITORS INTERDEPENDANT RELATIONSHIP OF COMPETITORS THE NEED TO BE IN THE POSITION OF COMPETITOR – TO BE INFORMED THE NEED TO BE IN THE POSITION OF COMPETITOR – TO BE INFORMED

17. TYPES OF GAMES Simultaneous games Simultaneous games Sequential games Sequential games Repeated games Repeated games