1. Chapter 4: Business-Level Strategy
Overview:
Defining business-level strategy
Risks of business-level strategies
Differences in business-level strategies
5-Forces
Relationship between customers and strategy

2. Introduction
Strategy: Increasingly important to a firm’s success and concerned with making choices among two or more alternatives.
Choices dictated by
External environment (O and T)
Internal resources, capabilities and core competencies (S and W)
Business level-strategy: Integrated and coordinated set of commitments and actions the firm uses to gain a competitive advantage by exploiting core competencies in specific product markets/industry
How we intend to compete in a specific industry or product market

3. Business-Level Strategies
Purpose: To create differences between position of a firm and its competitors
Positioning and strategic group mapping
Firm must make a deliberate choice to
Perform activities differently
Perform different activities
This choice impacts how value chain activities are performed to create unique value
No single strategy is better than others
Contingent on internal and external environment

4. Business-Level Strategies
Two types of competitive advantage firms must choose between
Low Cost (Are our costs LOWER than rivals costs?)
Distinctiveness (Are we DIFFERENT than rivals?)
Two types of ‘competitive scope’ firms must choose between
Broad target
Narrow target
The combination of competitive advantage and competitive scope yield 5 major strategic options at the business level
Each strategy can potentially be used by any organization competing in any industry

5. Five Business-Level Strategies

6. Types of Business-Level Strategies
Cost Leadership Strategy
Competitive advantage: THE low-cost leader and operates with margins greater than competitors
Competitive scope: Broad
Integrated set of actions designed to produce or deliver goods or services with features that are acceptable to customers at the lowest cost, relative to competitors
No-frills, standardized or commodity-like product
Must have competitive levels of quality, service, and other features and lowest overall costs
Continuously reduce the costs of and increase the efficiency of value chain activities

7. Examples of Value-Creating Activities Associated with the Cost Leadership Strategy

8. Types of Business-Level Strategies
Cost Leadership Strategy
In relationship to the 5 competitive forces:
Existing Rivalry
Rivals hesitate to compete on the basis of price
Bargaining Power of Buyers (Customers)
Powerful buyers are limited in their ability to force the cost leader to reduce prices
Bargaining Power of Suppliers
Cost leaders can absorb supplier price increases
Potential Entrants
Efficiency can serve as a barrier to entry
Product Substitutes
Can reduce prices when faced with substitutes
Thus built in defense against all 5 competitive forces
Also ability to compete based on costs and prices

9. Types of Business-Level Strategies
Cost Leadership Strategy
Competitive Risks
Innovations by competitors can quickly eliminate cost advantage
Too much focus on cost reduction versus competitive levels of differentiation
Competitors may learn how to successfully imitate a cost leader’s strategy

10. Types of Business-Level Strategies
Differentiation
Competitive advantage: Differentiation/uniqueness
Competitive scope: Broad
Integrated set of actions designed by a firm to produce or deliver goods or services at an acceptable cost that customers perceive as being different/unique in ways that are important to them
Targeted customers perceive product value
Customized products – differentiating on as many features as possible
Can differentiate in many ways and in many value chain areas

11. Examples of Value-Creating Activities Associated with the Differentiation Strategy

12. Types of Business-Level Strategies
Differentiation
In relationship to the 5 Forces:
Existing Rivalry
Customers loyalty to differentiated products reduces their sensitivity to price increases
Bargaining Power of Buyers (Customers)
Uniqueness and loyalty reduces customer’s sensitivity to price increases
Bargaining Power of Suppliers
Because of higher margins supplier price increases can be passed on the to the customer
Potential Entrants
Customer loyalty and uniqueness can serve as substantial barriers to new entry
Product Substitutes
Customer loyalty effectively positions firm against substitute products
Again built in defense against 5 competitive forces

13. Types of Business-Level Strategies
Differentiation
Risks
Can charge too high of a price premium
Differentiation theme no longer valuable to customers
Over-differentiating
Customer experience shows differentiation not worth the cost
Counterfeiting

14. Types of Business-Level Strategies
Focus strategies
Competitive advantage: Cost Leadership or Differentiation
Competitive scope: Narrow
An integrated set of actions taken to produce goods or services that serve the needs of a particular competitive segment
Attractive when:
Firm lacks resources to compete in the broader market
Firm may be able to more effectively serve a narrow market segment than larger industry-wide competitors
Firm has resources well suited to the niche
Niche is attractive
Large firms may overlook small niches

15. Types of Business-Level Strategies
Focus strategy examples
Particular buyer groups
Youths vs. senior citizens
Men vs. women
Different segment of a product line
Professional vs. do-it-yourself painters
Luxury vs. sport cars
Geographic markets
West coast vs. East coast
North America vs. Europe

16. Types of Business-Level Strategies
Focused Cost Leadership
Competitive advantage: Low-cost
Competitive scope: Narrow industry segment
Motel 6, Kia
Focused Differentiation
Competitive advantage: Differentiation
Ritz-Carlton, Apple, Rolls Royce

17. Types of Business-Level Strategies
Focus strategies
Risks
Same basic risks as broad cost leadership or broad differentiation plus:
A competitor may be able to focus on a more narrowly defined competitive segment and "outfocus” the focuser
A 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
Customer needs within a narrow competitive segment may become more similar to those of industry-wide customers as a whole

18. Types of Business-Level Strategies
Integrated Cost Leadership/Differentiation
Efficiently produce products with differentiated attributes
Efficiency: Sources of low cost
Differentiation: Source of unique value
Involves engaging in primary and support activities that allow a firm to simultaneously pursue low cost and differentiation
Low price with somewhat highly differentiated features
More value for the money
Often called best-cost or a hybrid strategy
Examples: Toyota, Target

19. Types of Business-Level Strategies
Integrated Cost Leadership/Differentiation
Risks of Integrated Strategies
Harder to implement than other strategies
Must simultaneously reduce costs while increasing differentiation
Can get ‘stuck in the middle’ resulting in no advantages and poor performance

20. Types of Business-Level Strategies
The Relative Nature of Business-Level Strategies
Competitive advantages are always relative to other firms
As are the competencies and capabilities they are based on
To be successful
Low cost firms must have the lowest overall costs
Differentiated firms must have higher levels of differentiation
Having the same level of costs and/or differentiated features as a competitor is unlikely to lead to a competitive advantage over them

21. Other Business-Level Strategies
Strategic Alliances and Partnerships (Chapter 9)
Mergers and Acquisitions (Chapter 7)
Vertical Integration (Chapter 6)
Outsourcing (Chapter 3)
Offensive and Defensive Strategies (Chapter 5)
First-Mover Advantages and Disadvantages (Chapter 5)
Business Model
Functional Area Strategies

22. Customers and their Relationship with Business-Level Strategies
Strategic competitiveness results when firm can satisfy customers by using its competitive advantages
Five components in customer relationships
Effectively managing relationships w/ customers
Deliver superior value and build customer loyalty
Reach, richness and affiliation
Access and connection to customers, depth and detail of information, and facilitating interactions with customers
Who: Determining the customers to serve
What: Determining which customer needs to satisfy
How: Determining core competencies necessary to satisfy customer needs