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Business-Level Strategy

Chapter Five

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Key Issues of Business-level Strategy

• What good or service to offer customers.What good or service to offer customers.• How to manufacture or create the good or How to manufacture or create the good or

service.service.• How to distribute the good or service in the How to distribute the good or service in the

marketplace.marketplace.

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The Central Role of Customers

In selecting a business-level strategy, the firm In selecting a business-level strategy, the firm determinesdetermines

1. 1. WhoWho it will serve. it will serve.

2.2. WhatWhat needs those target customers have needs those target customers have that it will satisfy.that it will satisfy.

3.3. HowHow those needs will be satisfied. those needs will be satisfied.

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Breadth of Competitive

Scope

BroadTargetMarket

NarrowTargetMarket

Focused Differentiation

CostLeadership

Differentiation

Focused Cost

Leadership

Source of Competitive Advantage

Cost Uniqueness

Generic Business Level Strategies

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1 Determine and Control Cost Drivers

New distribution channelNew advertising media

Direct sales in place of indirect sales

Alter production processChange in automationNew raw material

Forward integrationBackward integrationAlter location relative to suppliers or buyers

2 Reconfigure the as neededValue Chain

How to Obtain a Cost Advantage

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Dramatic technological change could take away your cost advantage.

Competitors may learn how to imitate Value Chain.

Focus on efficiency could cause Cost Leader to overlook changes in customer preferences.

Major Risks of Cost LeadershipBusiness Level Strategy

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Differentiation strategy

“An integrated set of actions designed by a firm to produce or deliver goods or

services that customers perceive as being different in ways that are important to

them.”

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Customers may decide that the differentiation between the differentiator’s product and the cost leaders price is too large.

A firm’s means of differentiation may cease to provide value for which customers are willing to pay.

The means of uniqueness may no longer be valued by customers.

Major Risks of a DifferentiationBusiness Level Strategy

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Focus Strategies

Focus strategies are an integrated set of actions designed to produce or deliver

goods or services that serve the needs of a particular competitive segment.

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However...Opportunities may exist because: Firm may lack resources to

compete industry wide. Large firms may overlook small Large firms may overlook small

niches.niches. The firm may be able to serve a

narrow market segment more effectively than industry wide competitors.

Focus can allow you to direct Focus can allow you to direct resources to certain value chain resources to certain value chain activities to build competitive activities to build competitive advantage.advantage.

Focused Business Level Strategies

Focused Business Level Strategies involve the same basic approach as Broad Market Strategies.

*

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Firm may be “out focused” by competitors.

Large competitor may set its sights on your niche market.

Preferences of niche market may change to match those of broad market.

Major Risks Involved With a FocusedDifferentiation Business Level Strategy

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Breadth of Competitive

Scope

BroadTargetMarket

NarrowTargetMarket

Focused Differen-

tiation

CostLeadership

Differen-tiation

Focused Cost

Leadership

Source of Competitive Advantage

Cost Uniqueness

Integrated Integrated Low Cost/Low Cost/

DifferentiationDifferentiation

Generic Business Level Strategies

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Recognize that the Integrated Low Cost/ Differentiation business level strategy involves a Compromise.

The risk is that the firm may become “Stuck in the Middle” lacking a strong commitment to or expertise with either type of generic strategy.

Integrated Low Cost/Differentiation