Business Level Strategy Flashcards
(12 cards)
Business Level Strategy
Indicates the choices the firm has made about how it intends to compete in individual product markets.
Strategic competitiveness results only when the firm is able to satisfy a group of customers by using its competitive advantages as the basis for competing in individual product markets.
Types of Business Level Strategies
- cost leadership
- differentiation
- focused cost leadership
- focused differentiation
- integrated cost leadership/differentiation
Cost leadership
a. concept
- acceptable to customers at the lowest cost, relative to that of competitors
- decreasing the cost of input factors, achieving economies of scale (decreases in per unit costs as output increases), experiencing learning-curve effects or experience-curve effects
Cost leadership
b. 5 forces
- Rivalry with Existing Competitors: hesitate to compete on the basis of price (only one leader)
- Bargaining Power of Buyers: may drive competitors out of business –> monopoly
- Bargaining Power of Suppliers: cost leader only capable to absorb its suppliers’ price increases
- Potential Entrants: entry barriers. New entrants must be willing and able to accept no-better-than-average returns until they gain the experience required to approach the cost leader’s efficiency.
- Product Substitutes: faced with possible substitutes, the cost leader has more flexibility than its competitors.
Cost leadership
c. risks
- source of competitive advantage could become obsolete because of competitors’ innovations
- too much focus on cost reductions
- competitors sometimes learn how to successfully imitate the cost leader’s strategy
Differentiation Strategy
a. concept
- produce goods or services, at an acceptable cost, that customers perceive as being different in ways that are important to them.
Differentiation Strategy
b. 5 forces
- Rivalry with Existing Competitors: loyal roducts that are differentiated in ways that are meaningful to them
- Bargaining Power of Buyers: uniqueness reduces customers’ sensitivity to price increases
- Bargaining Power of Suppliers: harges a premium price for its products, suppliers must provide high-quality components, driving up the firm’s costs
- Potential Entrants: demand significant investments of resources –> barriers
- Product Substitutes: customer loyalty effectively positions firm against product substitutes
Differentiation Strategy
c. risks
- price differential between the differentiator’s product and the cost leader’s product is too large
- product becomes less valuable if imitation by rivals same good or service, but at a lower price
- experience can narrow customers’ perceptions of the value of a product’s differentiated features
- counterfeiting
Focused Strategies
a. concept
Firms choose a focus strategy when they intend to use their core competencies to serve the needs of a particular industry segment or niche to the exclusion of others
Focused Strategies
c. risks
- same general risks
- competitor may be able to focus on a more narrowly defined competitive segment and “outfocus” the focuser
- 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
- needs of customers within a narrow competitive segment may become more similar to those of industry-wide customers as a whole
Integrated Cost-Leadership/Differentiation Strategy
a. concept
- simultaneously pursue low cost and differentiation
- simultaneously concentrating on developing two sources of competitive advantage (cost and differentiation) increases the number of primary and support activities in which the firm must become competent.
Integrated Cost-Leadership/Differentiation Strategy
c. risks
- difficult for firms to perform primary and support activities in ways that allow them to produce relatively inexpensive products with levels of differentiation
- “stuck in the middle”, not low enough, not sufficiently differentiated
