Chapter-5 - Business Policy and Strategy
Chapter-5 - Business Policy and Strategy
Building Competitive
Advantage Through
Business-Level Strategy
BUSINESS-LEVEL STRATEGY
A successful business model results from
business level strategies that create a
competitive advantage over its rivals.
They must decide on:
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
These decisions determine
which strategies are formulated & implemented
to put a business model into action.
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CUSTOMER NEEDS: PRODUCT DIFFERENTIATION
Customer needs
The desires, wants, or cravings that can be satisfied through
product attributes
Customers choose a product based on:
1. The way the product is differentiated from other products of its
type
2. The price of the product
Product differentiation
Designing products to satisfy customers’ needs in ways that
competing products cannot:
• Different ways to achieve distinctiveness
• Balancing differentiation with costs
• Ability to charge a higher or premium price 5|3
CUSTOMER NEEDS: MARKET SEGMENTATION
Market Segmentation
The way customers can be grouped based on important
differences in their needs or preferences
In order to gain a competitive advantage
Main Approaches to Segmenting Markets
1. Ignore differences in customer segments –
Make a product for the typical or average customer
2. Recognize differences between customer groups –
Make products that meet the needs of all or most customer groups
3. Target specific segments –
Choose to focus on and serve just
one or two selected segment
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IDENTIFYING CUSTOMER GROUPS AND
MARKET SEGMENTS
Figure 5.1
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THREE APPROACHES TO MARKET SEGMENTATION
Figure 5.2
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IMPLEMENTING THE BUSINESS MODEL
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WAL-MART’S BUSINESS MODEL
Figure 5.3
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COMPETITIVE POSITIONING AT THE BUSINESS LEVEL
Maximizing the profitability of the company’s business Figure 5.4
model is about making the right choices with regard to
value creation through differentiation, costs, and pricing.
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GENERIC BUSINESS-LEVEL
STRATEGIES
Specific business-level strategies that give a
company a specific competitive position and
advantage vis-à-vis its rivals
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WHY FOCUS STRATEGIES ARE DIFFERENT
Figure 5.7
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FOCUS GENERIC BUSINESS-LEVEL STRATEGIES
The focuser strives to serve the need of
a targeted niche market segment
where it has either a low-cost or
differentiated competitive advantage.
Strategic Choices
• The focuser selects a specific market niche
that may be based on:
➢ Geography
➢ Type of customer
➢ Segment of product line
• Focused company positions itself as either:
➢ Low-Cost or
➢ Differentiator
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ADVANTAGES FOCUS STRATEGIES
The focuser is protected from rivals to the extent it
can provide a product or service they can not.
The focuser has power over buyers because they
cannot get the same thing from anyone else.
The threat of new entrants is limited by customer
loyalty to the focuser.
Customer loyalty lessens the threat from substitutes.
The focuser stays close to its customers and their
changing needs.
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DISADVANTAGES: FOCUS STRATEGIES
The focuser is at a disadvantage with regard to
powerful suppliers because it buys in small
volume but it may be able to pass costs along to
loyal customers.
Because of low volume, a focuser may have higher
costs than a low-cost company.
The focuser’s niche may disappear because of
technological change or changes in customers’
tastes.
Differentiators will compete for a focuser’s niche.
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Differentiation:
Generic Business-Level Strategies
Companies with a differentiation strategy
create a product that is different or distinct
from its competitors in an important way.
Strategic Choices
• A differentiator strives to differentiate itself
on as many dimensions as possible.
• Differentiator focuses on quality, innovation,
and responsiveness to customer needs.
• May segment the market in many niches.
• A differentiated company concentrates on
the organizational functions that provide a
source of distinct advantages.
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ADVANTAGES OF DIFFERENTIATION STRATEGIES
Customers develop brand loyalty.
Powerful suppliers are not a problem because the company
is geared more toward the price it can charge than its costs.
Differentiators can pass price increases on to customers.
Powerful buyers are not a problem because the product is
distinct.
Differentiation and brand loyalty are barriers to entry.
The threat of substitute products depends on competitors’
ability to meet customer needs.
Differentiators can create demand for their
distinct products and charge a premium price,
resulting in greater revenue and higher profitability.
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DISADVANTAGES OF DIFFERENTIATION STRATEGIES
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BROAD DIFFERENTIATION:
COST LEADERSHIP AND DIFFERENTIATION
A broad differentiation business model may result when a successful
differentiator has pursued its strategy in a way that has also allowed
it to lower its cost structure:
Using robots and flexible manufacturing cells reduces costs while
producing different products.
Standardizing component parts used in different end products can
achieve economies of scale.
Limiting customer options reduces production and marketing costs.
JIT inventory can reduce costs and improve quality and reliability.
Using the Internet and e-commerce can provide information to
customers and reduce costs.
Low-cost and differentiated products are often both produced in
countries with low labor costs.
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COMPETITIVE POSITIONING: STRATEGIC GROUPS
Strategic Groups are groups of companies that
follow a business model similar to other companies
within their strategic group, but are different from
that of other companies in other strategic groups.
Implications of Strategic Groups for Competitive Positioning:
1. Strategic managers must map their competitors:
• Map according to their choice of business model
• Use this knowledge to position themselves closer to customers
• Differentiate themselves from their competitors
2. Use the map to better understand changes in the industry
• Affecting its relative position vis-à-vis differentiation & cost structure
• To identify opportunities and threats
• Identify emerging threats from companies outside the strategic group
3. Determine which strategies are successful
Why certain business models are working or not
4. Fine tune or radically alter business models and strategies to improve
competitive position 5 | 23
FAILURES IN COMPETITIVE POSITIONING
Successful competitive positioning requires that a company
achieve a fit between its strategies and its business model.
Many companies, through neglect, ignorance or error:
Do not work continually to improve their business model
Do not perform strategic group analysis
Often fail to identify and respond to changing opportunities and
threats in the industry environment
Companies lose their position on the value frontier –
They have lost their source of competitive advantage
Their rivals have found ways to push out the value-creation frontier
and leave them behind
There is no more important task than ensuring that
the company is optimally positioned against its rivals
to compete for customers.
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ANY QUESTION?
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