BusinessLevel Strategy Creating and Sustaining Competitive Advantages chapter

Business-Level Strategy: Creating and Sustaining Competitive Advantages chapter 5. Copyright © 2014 Mc. Graw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of Mc. Graw-Hill Education

Three Generic Strategies 5 -2 Exhibit 5. 1 Three Generic Strategies as Part of a Business-Level Strategy Source: Adapted and reprinted with the permission of The Free Press, a division of Simon & Schuster Inc. from Competitive Strategy: Techniques for Analyzing Industries and Competitors. Michael E Porter. Copyright © 1980, 1998 by The Free Press. All rights reserved.

Three Generic Strategies 5 -3 ¥ Overall cost leadership is based on: © Creating a low-cost position relative to a firm’s peers: see the experience curve & competitive parity © Managing relationships throughout the entire value chain to lower costs ¥ Differentiation © Products implies: and/or services that are unique & valued © Emphasis on nonprice attributes for which customers will gladly pay a premium

Three Generic Strategies 5 -4 ¥A focus strategy requires: © Narrow product lines, buyer segments, or targeted geographic markets © Advantages obtained either through differentiation or cost leadership

Three Generic Strategies 5 -5 Exhibit 5. 2 Competitive Advantage and Business Performance

Combination Strategies: Integrating 5 -6 Low-Cost & Differentiation ¥ The goal of a combination strategy is to provide unique value in an efficient manner © Automated & flexible manufacturing systems allow for mass customization © Exploitation of the profit pool concept creates a competitive advantage © Using information technology, firms can integrate activities throughout the extended value chain

5 -7 Internet-Enabled Low-Cost Leader Strategies ¥ The Internet and digital technologies lower transaction costs: © No in-person sales calls © Paperless transactions ¥ Disintermediation or removing intermediaries also lowers transaction costs © Reduced search costs © No need for a permanent retail location

5 -8 Internet-Enabled Differentiation Strategies ¥ The Internet and digital technologies have created new ways of differentiating by enabling mass customization ¥ Customers can judge the quality & uniqueness of a product or service by their ability to be involved in its planning & design ¥ Lowered transaction costs allow firms to achieve parity on cost while providing a unique experience

Internet-Enabled Focus Strategies 5 -9 ¥ The Internet and digital technologies have created new ways of competing in a narrow market segment ¥ Customers can access markets less expensively, and small firms can extend their reach ¥ Social media allows niche firms to solicit input and respond quickly to customer feedback

5 -10 Internet-Enabled Combination Strategies ¥ The Internet and digital technologies have provided all companies with greater tools for managing costs ¥ With lower costs for all, the net effect is fewer rather than more opportunities for sustainable advantage ¥ The ease of comparison shopping also erodes differentiation advantages

Industry Life Cycle Stages 5 -11 Exhibit 5. 7 Stages of the Industry Life Cycle

5 -12 Strategies in the Introduction Stage ¥ The introduction stage is when: © Products are unfamiliar to consumers © Market segments are not well-defined © Product features are not clearly specified © Competition tends to be limited ¥ Strategies: © Develop a product and get users to try it © Generate exposure so the product becomes “standard”

Strategies in the Growth Stage 5 -13 ¥ The growth stage is: © Characterized by strong increases in sales © Attractive to potential competitors © When firms can build brand recognition ¥ Strategies: © Create branded differentiated products © Stimulate selective demand © Provide financial resources to support valuechain activities

Strategies in the Maturity Stage 5 -14 ¥ The maturity stage is when: © Aggregate industry demand slows © Market becomes saturated, few new adopters © Direct competition becomes predominant © Marginal competitors begin to exit ¥ Strategies: © Create efficient manufacturing operations © Lower costs as customers become pricesensitive © Adopt reverse or breakaway positioning

Strategies in the Decline Stage 5 -15 ¥ The decline stage is when: © Industry sales and profits begin to fall © Price competition increases © Industry consolidation occurs ¥ Strategies: © Maintaining the product position © Harvesting profits & reducing costs © Exiting the market © Consolidating or acquiring surviving firms

Turnaround Strategies 5 -16 ¥A turnaround strategy involves reversing performance decline & reinvigorating growth toward profitability through © Asset & cost surgery © Selected market & product pruning © Piecemeal productivity improvements ¥ Example = Ford Motor Company ¥ Example = Jamba Juice