Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Strategic Management: Text and Cases, 4e 5 Business-Level Strategy

Three Generic Strategies Towards Competitive Advantage  Overall cost leadership  Differentiation  Focus strategy

Examples of Each  Companies pursuing an overall cost leadership strategy  McDonalds  Wal-Mart  Companies pursuing a differentiation strategy  Harley Davison  Apple  Companies pursuing a focus strategy  Rolex  Lamborghini

Three Generic Strategies

Overall Cost Leadership Vs. Differentiation Exhibit 5.3 Value-Chain Activities: Examples of Overall Cost Leadership Source: Adapted with the permission of The Free Press, a division of Simon & Schuster, Inc., from Competitive Advantage: Creating and Sustaining Superior Performance by Michael E. Porter. Copyright © 1985 by Michael E. Porter.

Comparing Experience Curve Effects Exhibit 5.4 Comparing Experience Curve Effects

Overall Cost Leadership:  What are some of the benefits of this strategic position?  What are some of the challenges of this strategic position?

Differentiation  Several dimensions at once  Price premiums must exceed extra costs of being unique  Requires value chain integration  Speed or quick response

Differentiation  What are some of the benefits of this strategic position?  What are some of the challenges of this strategic position?

Focus  Focus is a selection of a narrow competitive scope within an industry  Two variants  Cost focus  Differentiation focus

Focus Strategies  What are some of the benefits of this strategic position?  What are some of the challenges of this strategic position?

Combination Strategies: Integrating Overall Low Cost and Differentiation  Firms that successfully integrate differentiation and cost strategies obtain advantages of competition from both approaches  Firms that fail to attain both strategies may end up with neither and become “stuck in the middle”

 Life cycle of an industry affects the appropriateness of a given strategy  Introduction  Growth  Maturity  Decline

Strategies in the Introduction Stage  Products are unfamiliar to consumers  Market segments not well defined  Product features not clearly specified  Competition tends to be limited Develop product and get users to try it Generate exposure so product becomes “standard” Strategies

Strategies in the Growth Stage  Characterized by strong increases in sales  Attractive to potential competitors  Primary key to success is to build consumer preferences for specific brands Strategies Brand recognition Differentiated products Financial resources to support value-chain activities

Strategies in the Maturity Stage  Market becomes saturated, few new adopters  Direct competition becomes predominant  Marginal competitors begin to exit Strategies Efficient manufacturing operations and process engineering Low costs (customers become price sensitive)

Strategies in the Decline Stage  Industry sales and profits begin to fall  Strategic options become dependent on the actions of rivals Strategies Maintaining Exiting the market Harvesting Consolidation