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Business Level
StrategyIjaz Ahmed
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StrategyConcerned with making choices among two or more
alternatives
The choices are infuenced by opportunities and threats
nature and quality o the resources! capabilities! and corecompetencies
Strategies are purposeul! precede the taking o actions to which they apply!
demonstrate a shared understanding o the "rm#s vision andmission$
Acer#s decisions to acquire %ateway and &ackard 'ell werequite purposeul$ Acquiring %ateway helped the "rm establish a better oothold in
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Business-Level Strategy(Defned)
An integrated and coordinated set ocommitments and actions the "rm uses to
gain a competitive advantage by e*ploitingcore competencies in specifc productmarkets$
Core strategy! )very "rm has one! how it
intends to compete
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Reach, Richness,Aliation
,each The reach dimension o relationships with customers is
concerned with the frm!s access and connection to
customers
,ichness,ichness! the second dimension o "rms# relationships
with customers! is concerned with the depth and detailo" the t#o-#ay $o# o" in"ormation between the "rmand the customer$
A-liationthe third dimension! is concerned with "acilitating
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u &Relationship to Business-Level Strategies
ey ssuesin
Business-levelStrategy
*ho #ill +eserved
*hat needs #ill+e satisfed
o# #ill thoseneeds +e satisfed
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*ho& Determining the%ustomers to Serve
.arket segmentationA process used to cluster people with similar
needs into individual and identi"able groups$
All %ustomers
ndustrial.arkets
%onsumer.arkets
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.arket Segmentation
Consumer .arkets
+emographic actorsSocioeconomic
actors
%eographic actors
&sychological actors
Consumptionpatterns
&erceptual actors
Industrial .arkets
)nd/use segments
&roduct segments
%eographic segments
Common buyingactor segments
Customer sizesegments
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%onsumer .arkets
• Demographic "actors (age, income, se/, etc0)
•Socioeconomic "actors (social class, stage in the"amily li"e cycle)
• 1eographic "actors (cultural, regional, andnational di2erences)
• 3sychological "actors (li"estyle, personality traits)
• %onsumption patterns (heavy, moderate, and lightusers)
• 3erceptual "actors (consumer perceptions
.arket Segmentation
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ndustrial .arkets• 4nd use segment (Standardi5ed ndustrial
%lassifcation %ode) (igh speed and lo# speedmotors)
• 1eographic segments (defned +y +oundaries+et#een countries or +y regional di2erences#ithin them)
• %ommon +uying "actor segments• 0ive actors are typically ound to be important in
most industrial buying situations1 productperormance! product quality! service! delivery!and price$
•
.arket Segmentation
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& *hich %ustomer6eeds to Satis"y
Customer needs are related to a product#sbene"ts and eatures$
Customer needs are neither right nor wrong!good nor bad$
Customer needs represent desires in terms o
eatures and perormance capabilities$
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o#& Determining %ore%ompetencies 6ecessary
to Satis"y %ustomer6eeds
0irms use core competencies to implement
value creating strategies that satisycustomers# needs$
3nly "rms with capacity to continuouslyimprove, innovate and upgrade theircompetencies can e*pect to meet and4ore*ceed customer e*pectations across time$
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'he 3urpose o" a Business-
Level Strategy'usiness/5evel Strategies
Are intended to create di2erences between
the "rm#s position relative to those o its rivals$
To position itsel! the "rm must decidewhether it intends to1
&erorm activities di6erently or
&erorm di6erent activities as compared torivals$
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'ypes o" 3otential
%ompetitive AdvantageAchieving lower overall costs than rivals
&erorming activities di6erently 7reducing
process costs8
&ossessing the capability to di6erentiate the"rm#s product or service and command a
premium price&erorming di6erent 7more highly valued8
activities$
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'ypes o" Business-LevelStrategies
%ost 7ni8ueness
Di2erentiation%ost Leadership
9ocusedDi2erentiation
9ocused %ostLeadership
ntegrated %ostLeadership:
Di2erentiation
Broad'arget
6arro#'arget
%ompetitive Advantage
%ompetitiveScope
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0irms serving a broad target market seek touse their competitive advantage on anindustry/wide basis$
A narrow competitive scope means that the"rm intends to serve the needs o a narrowtarget customer group$
9ith ocus strategies! the "rm :selects asegment or group o segments in the industryand tailors its strategy to serving them to thee*clusion o others$;
'uyers with special needs and buyers located in
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%ost Leadership Strategy
An integrated set o actions taken to producegoods or services with eatures that areacceptable to customers at the lowest cost!relative to that o competitors
,elatively standardized products
0eatures acceptable to many customers
5owest competitive price
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&rocess innovationsnewly designed production and distribution methods
and techniques that allow the "rm to operate moree-ciently! are critical to successul use o the costleadership strategy
Cost leaders# goods and services must havecompetitive levels o di6erentiation that createvalue or customers while maintaining low cost
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,esearch suggests that having a competitiveadvantage in terms o logistics creates morevalue when using the cost leadership strategythan when using the di6erentiation strategy$
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'ig 5ots#s
Sell name/brand products at prices that are=> to ?> percent below those o discountretailers and roughly @> percent below thoseo traditional retailers$
'ig 5ots#s buyers search or manu"actureroverruns and discontinued styles to "ndgoods priced well below wholesale prices$
Buys "rom overseas suppliers$
'ig 5ots satis"es the customers# need toaccess the di6erentiated eatures o brand/
name products! but at a raction o their initial
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%ost Leadership Strategy
Cost saving actions required by this strategy1
'uilding e-cient scale acilities
Tightly controlling production costs andoverhead
.inimizing costs o sales! ,+ and service
'uilding e-cient manuacturing acilities
.onitoring costs o activities provided byoutsiders
Simpliying production processes
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o# to ;+tain a %ostAdvantage
Determineand control
%ostDrivers
Reconfgure
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0 )*amples o Balue/Creating ActivitiesAssociated with the Cost 5eadership Strategy
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%ost Leadership Strategy&%ompetitors
+ue to cost leader#sadvantageous position1
,ivals hesitate tocompete on basis oprice$
5ack o price competitionleads to greater pro"ts$
'hreat o"ne#
entrants
Bargaining po#er
o"suppliers
Rivalryamong
competingfrms
Bargainingpo#er o"+uyers
'hreat o"su+stituteproducts
Rivalry #ith4/isting
%ompetitors
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%ost Leadership Strategy&Buyers
Can mitigate buyers#power by1+riving prices ar
below competitors!
causing them to e*it!thus shiting powerwith buyers back tothe "rm$
'hreat o"ne#
entrants
Bargaining po#er
o"suppliers
Rivalryamong
competingfrms
Bargainingpo#er o"+uyers
'hreat o"su+stituteproducts
Bargaining 3o#ero" Buyers
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%ost Leadership Strategy&Suppliers
Can mitigatesuppliers# power by1
'eing able to absorbcost increases due tolow cost position$
'eing able to makevery large purchases!reducing chance osupplier using power$
'hreat o"ne#
entrants
Bargaining po#er
o"suppliers
Rivalryamong
competingfrms
Bargainingpo#er o"+uyers
'hreat o"su+stituteproducts
Bargaining 3o#ero" Suppliers
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%ost Leadership Strategy&6e# 4ntrantsCan righten o6 new
entrants due to1 Their need to enter on
a large scale in order tobe cost competitive$
The time it takes tomove down thelearning curve$
)-ciency
'hreat o"ne#
entrants
Bargaining po#er
o"suppliers
Rivalryamong
competingfrms
Bargainingpo#er o"+uyers
'hreat o"su+stituteproducts
'he 'hreat o"3otential 4ntrants
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%ost Leadership Strategy&Su+stitutes
Cost leader is wellpositioned to1
.ake investments to be"rst to create
substitutes$'uy patents developed
by potential substitutes$
5ower prices in order to
maintain value position$
.ore customers
'hreat o"ne#
entrants
Bargaining po#er
o"suppliers
Rivalryamong
competingfrms
Bargainingpo#er o"+uyers
'hreat o"su+stituteproducts
3roductSu+stitutes
%ost Leadership Strategy
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%ost Leadership Strategy(cont!d)
Competitive ,isks&rocesses used to produce and distribute good
or service may become obsolete due tocompetitors# innovations$
Too much ocus by the cost leader on costreductions may occur at the e*pense o tryingto understand customers# perceptions o:competitive levels o di6erentiation$;
9al/.art! or e*ample! has been criticized or having too ewsalespeople available to help customers and too ew individuals atcheckout registers$ These complaints suggest that there might be adiscrepancy between how 9al/.art#s customers de"ne :minimallevels o service; and the "rm#s attempts to drive its costs lower andlower$
Competitors! using their own core
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Di2erentiation Strategy
An integrated set o actions taken to producegoods or services 7at an acceptable cost8 thatcustomers perceive as being di6erent in ways
that are important to them$
0ocus is on nonstandardized products
Appropriate when customers value
di6erentiated eatures more than they valuelow cost$
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9hen the "rm has a thorough understanding owhat its target customers value
the relative importance they attach to thesatisaction o di6erent needs
or what they are willing to pay a premium!
the di6erentiation strategy can be e6ective inhelping it earn above/average returns
A good or service can be di6erentiated in many
ways$(nusual eatures
responsive customer service
rapid product innovations and technological
leadership
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o# to ;+tain aDi2erentiation Advantage
%ontrol%ost
Drivers i"needed
Reconfgure
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0igure 4.4 )*amples o Balue/Creating Activities Associatedwith the +i6erentiation Strategy
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Di2erentiation Strategy&%ompetitors
+eends againstcompetitors because
brand loyalty todi6erentiated producto6sets price competition$
'hreat o"ne#
entrants
Bargaining po#er
o"suppliers
Rivalryamong
competingfrms
Bargaining
po#er o"+uyers
'hreat o"
su+stituteproducts
Rivalry #ith%ompetitors
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Di2erentiation Strategy&Buyers
Can mitigate buyers#power because welldi6erentiated productsreduce customer
sensitivity to priceincreases$
'hreat o"ne#
entrants
Bargaining po#er
o"suppliers
Rivalryamong
competingfrms
Bargaining
po#er o"+uyers
'hreat o"
su+stituteproducts
Bargaining 3o#ero" Buyers
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Di2erentiation Strategy&Suppliers
Can mitigate suppliers#power by1
Absorbing price increasesdue to higher margins$
&assing along highersupplier prices becausebuyers are loyal todi6erentiated brand$
'hreat o"ne#
entrants
Bargaining po#er
o"suppliers
Rivalryamong
competingfrms
Bargaining
po#er o"+uyers
'hreat o"
su+stituteproducts
Bargaining 3o#ero" Suppliers
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Di2erentiation Strategy&6e# 4ntrants
Can deend against newentrants because1
ew products must surpassproven products$
ew products must be atleast equal to perormanceo proven products! buto6ered at lower prices$
'hreat o"ne#
entrants
Bargaining po#er
o"suppliers
Rivalryamong
competingfrms
Bargaining
po#er o"+uyers
'hreat o"
su+stituteproducts
'he 'hreat o"3otential 4ntrants
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Di2erentiation Strategy&Su+stitutes
9ell positioned relativeto substitutes because1'rand loyalty to a
di6erentiated product
tends to reducecustomers# testing o newproducts or switchingbrands$
'hreat o"ne#
entrants
Bargaining po#er
o"suppliers
Rivalryamong
competingfrms
Bargaining
po#er o"+uyers
'hreat o"
su+stituteproducts
3roductSu+stitutes
%ompetitive Risks o"
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%ompetitive Risks o"Di2erentiation
The price di6erential between the di6erentiator#s productand the cost leader#s product becomes too large$
+i6erentiation ceases to provide value or which customersare willing to pay$
A di6erentiated product becomes less valuable iimitation by rivals causes customers to perceive thatcompetitors o6er essentially the same good or service!but at a lower price
)*perience narrows customers# perceptions o the value o
di6erentiated eatures$ customers having positive e*periences with generic tissues may
decide that the di6erentiated eatures o the
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%ompetitive Risks o"Di2erentiation
Countereit goods
Countereit goods replicate di6erentiated eatures
o the "rm#s products$:Countereits are those products bearing a
trademark that is identical to or indistinguishablerom a trademark registered to another party! thus
inringing the rights o the older o the trademark
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9ocus Strategies
An integrated set o actions taken to producegoods or services that serve the needs o aparticular competitive segment$
&articular buyer groupDyouths or seniorcitizens
+i6erent segment o a product lineDproducts
or proessional painters versus do/it/yourselgroup
+i6erent geographic marketsD Sindh vs &unjab
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9ocus Strategies (cont!d)
0ocused cost leadership strategy7I
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9ocus Strategies (cont!d)
0ocused di6erentiation strategy
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9actors 'hat Drive 9ocusedStrategies
5arge "rms may overlook small niches$
A "rm may lack the resources needed to compete
in the broader market$
A "rm is able to serve a narrow market segmentmore e6ectively than can its larger industry/wide
competitors$
0ocusing allows the "rm to direct its resources tocertain value chain activities to build competitive
advantage$
i i i k "
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%ompetitive Risks o" 9ocusStrategies
A ocusing "rm may be :out/ocused; by itscompetitors$
A large competitor may set its sights on a "rm#sniche market$
Customer preerences in niche market maychange to more closely resemble those o thebroader market$ Cameras$
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Leadership:Di2erentiation Strategy
A "rm that successully uses an integratedcost leadership4di6erentiation strategy shouldbe in a better position to1
Adapt quickly to environmental changes$
5earn new skills and technologies more quickly$
)6ectively leverage its core competencies whilecompeting against its rivals$
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Di2erentiation Strategy(cont!d)
Commitment to strategic fe*ibility isnecessary or implementation o integratedcost leadership4 di6erentiation strategy$
0le*ible manuacturing systems 70.S8
Inormation networks
Total quality management 7TE.8 systems
9l i+l . " t i
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9le/i+le .anu"acturingSystems
Computer/controlled processes used toproduce a variety o products in moderate!fe*ible quantities with a minimum o manual
intervention$
%oal is to eliminate the :low/cost/versus/wideproduct/variety; tradeo6$
Allows "rms to produce large variety oproducts at relatively low costs$
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n"ormation 6et#orks
5ink companies electronically with theirsuppliers! distributors! and customers$
0acilitate e6orts to satisy customere*pectations in terms o product quality anddelivery speed$
Improve fow o work among employees in the"rm and their counterparts at suppliers anddistributors$
Customer relationship management 7C,.8
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'otal =uality .anagement
('=.) Systems)mphasize total commitment to the customer
through continuous improvement using1+ata/driven! problem/solving approaches
)mpowerment o employee groups and teams
'ene"tsIncreased customer satisaction
5ower costs,educed time/to/market or innovative products
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)*ceeding customers# e*pectations regardingquality is a di6erentiating eature
And eliminating process ine-ciencies to cutcosts allows the "rm to o6er that quality tocustomers at a relatively low price$
Thus! an e6ective TE. system helps the "rmdevelop the fe*ibility needed to spotopportunities to simultaneously increase
di6erentiation and reduce costs$
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%ost Leadership:Di2erentiation Strategy3ten involves compromises
'ecoming neither the lowest cost nor the mostdi6erentiated "rm$
'ecoming :stuck in the middle;5acking the strong commitment and e*pertise
that accompanies "rms ollowing either a cost
leadership or a di6erentiated strategy$
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