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 -1
Business-Level Strategy
Firms must decide/evaluate: 1. Customer needs– WHAT is to be satisfied 2. Customer groups– WHO is to be satisfied 3. Distinctive competencies– HOW customers are to be
satisfied
A successful business model results from business-level strategies that create a
competitive advantage over 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. 5-2
Customer Needs and Product Differentiation
o Customer needs- desires, wants, or cravings to be satisfied through product attributes
Ä Customers choose product based on: 1. Way product differentiated from others 2. Price of product
o Product differentiation- designing products to satisfy customers’ needs in ways competing products cannot
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. 5-3
Customer Groups and Market Segmentation
o Market Segmentation- customers grouped based on differences in needs or preferences
o Main Approaches to Segmenting Markets 1. Ignore differences in segments– make product for
typical/average customer 2. Recognize differences between segments– make
products that meet needs of all/most segments
3. Target specific segments– focus on/serve one or two selected segments
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. 5-4
Identifying Customer Groups and Market Segments
Figure 5.1
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. 5-5
Three Approaches to Market Segmentation
Figure 5.2
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. 5-6
Implementing the Business Model
Strategic managers must devise strategies that determine how:
• To DIFFERENTIATE & PRICE product • To SEGMENT market & how
WIDE A RANGE of products to develop
A profitable business model depends on providing customer with most value while keeping cost structures viable.
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 -7
Cost Leadership Establishes a cost structure that allows them to provide goods/services at lower unit costs
Strategic Choices • Cost leader does not try to be industry
innovator. • Cost leader positions products to
appeal to “average” or typical customer.
• Overriding goal of cost leader is to increase efficiency & lower costs relative to industry 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. 5 -8
Advantages of Cost Leadership Strategies
o Protected from competitors by cost advantage o Less affected by increased prices of
inputs if there are powerful suppliers o Less affected by a fall in price of
inputs if there are powerful buyers o Purchases in large quantities increase
bargaining power over suppliers o Ability to reduce price to compete
with substitute products o Low costs and prices are a barrier to entry
Cost leaders able to charge lower price or achieve superior profitability at same price.
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. 5-9
Disadvantages of Cost Leadership Strategies
û Competitors may lower their cost structures.
û Competitors may imitate cost leader’s methods.
û Cost reductions may affect demand.
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. 5-10
Companies with differentiation strategy create product different or
distinct from competitors in important way.
Strategic Choices- Differentiator » Strives to differentiate itself on as many
dimensions as possible. » Focuses on quality, innovation, and
responsiveness to customer needs. » May segment market in many niches. » Concentrates on organizational functions
that provide source of distinct advantages.
Differentiation
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. 5-11
Advantages of Differentiation Strategies
o Customers develop brand loyalty. o Powerful suppliers not problem because company
geared more toward price it can charge than costs. o Can pass price increases on to loyal customers. o Powerful buyers not problem because product
distinct. o Differentiation & brand loyalty = barriers to entry. o Threat of substitute products depends on
competitors’ ability to meet customer needs. Differentiators create demand for their
distinct products and charge a premium price, resulting in greater revenue and higher profitability.
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 -12
o Difficulty maintaining long-term distinctiveness in customers’ eyes.
• Agile competitors can quickly imitate. • Patents and first-mover advantage
are limited in duration. o Difficulty maintaining premium
price.
Disadvantages of Differentiation Strategies
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 -13
Focus Focuser strives to serve need of targeted
niche market segment where it has either low-cost or differentiated competitive advantage.
Strategic Choices- Focus • Focuser selects specific market based on:
Ø Geography Ø Type of customer Ø Segment of product line
• Focused company positions self as either: Ø Low-Cost or Ø Differentiator
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. 5-14
Advantages of Focus Strategies
o Focuser protected from rivals to extent can provide a product /service they cannot.
o Focuser has power over buyers because they cannot get same thing elsewhere
o Threat of new entrants limited by customer loyalty to focuser.
o Customer loyalty lessens threat from substitutes.
o Focuser stays close to customers and changing needs.
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 -15
Disadvantages of Focus Strategies
o Focuser at disadvantage to powerful suppliers because it buys in small volume (but may pass costs to loyal customers).
o Because of low volume, focuser may have higher costs than low-cost company.
o Focuser’s niche may disappear because of technological change or changes in customers’ tastes.
o Differentiators will compete for focuser’s niche.
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. 5-16
Strategic managers must: 1. Map their competitors 2. Better understand changes in industry 3. Determine which strategies are successful 4. Fine tune or radically alter business models
& strategies to improve competitive position
Groups of companies follow a business model similar to other
companies within their strategic group, but are different from other companies in other groups.
Competitive Positioning: Strategic Groups
Top Related