business-level strategy - weebly · business-level strategy firms must decide/evaluate: 1. customer...
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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.
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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
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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
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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
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.
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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.
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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.
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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.
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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
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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.
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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
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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
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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.
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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.
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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