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Chapter

Chapter 5
5

Business-Level Strategy

Tarun Dongrani 9177


Onkar Kadam 9188
Nikhil Nalawade 9199
Jitesh Parihar 9200
Chandar Vaidya 9218
Business-Level Strategy (Defined)

• An integrated and coordinated set of


commitments and actions the firm uses to gain a
competitive advantage by exploiting core
competencies in specific product markets.
The resources and capabilities
Core that have been determined to
Competency be a source of competitive
advantage for a firm over its
rivals.
Core The resources and capabilities that have been
Competency determined to be a source of competitive
advantage for a firm over its rivals.

An integrated and coordinated


set of actions taken to exploit
Strategy
core competencies and gain a
competitive advantage.
Core The resources and capabilities that have been
Competency determined to be a source of competitive
advantage for a firm over its rivals.

An integrated and coordinated set of


Strategy actions taken to exploit core competencies
and gain a competitive advantage.

Actions taken to provide value to


Business customers and gain a competitive
Level advantage by exploiting core
Strategy competencies in specific,
individual product markets.
Effectively Managing
Relationships with Customers
• Firms must manage all aspects of their
relationship with customers.
– Reach: firm’s success and connection to
customers
– Richness: depth and detail of two-way flow of
information between the firm and the customer
– Affiliation: facilitation of useful interactions with
customers
Customers: Their Relationship to
Business-Level Strategies
Who will be
served?

Key Issues
in What needs will
Business-level be satisfied?
Strategy

How will those


needs be satisfied?
Who: Determining the Customers to Serve

• Market segmentation
– A process used to cluster people with similar needs
into individual and identifiable groups.

All Customers
Consumer Industrial
Markets Markets
Market Segmentation
• Consumer Markets • Industrial Markets
– Demographic factors – End-use segments
– Socioeconomic factors – Product segments
– Geographic factors – Geographic segments
– Psychological factors – Common buying factor
segments
– Consumption patterns
– Customer size
– Perceptual factors
segments
What: Determining Which Customer
Needs to Satisfy
• Customer needs are related to a product’s
benefits and features.
• Customer needs are neither right nor
wrong, good nor bad.
• Customer needs represent desires in
terms of features and performance
capabilities.
How: Determining Core Competencies
Necessary to Satisfy Customer Needs
• Firms use core competencies to
implement value creating strategies that
satisfy customers’ needs.
• Only firms with capacity to continuously
improve, innovate and upgrade their
competencies can expect to meet and/or
exceed customer expectations across
time.
Generic Business Level Strategies
Source of Competitive Advantage

Cost Uniqueness

Broad Cost Differen-


Target
Market Leadership tiation
Breadth of
Competitive
Scope
Focused
Narrow Focused
Target Differen-
Market Low Cost
tiation
Cost Leadership Business Level Strategy

Key Criteria:

Relatively standardized products

Features acceptable to many customers

Lowest competitive price


Cost Leadership Business Level Strategy
Requirements:
Constant effort to reduce costs through:

Tight control of production costs and overhead


Minimizing costs of sales, R&D and service
State of the art manufacturing facilities
Monitoring costs of activities provided by outsiders
Simplification of processes
Value Creating Activities Common to a
Cost Leadership Business Level Strategy
Firm Infrastructure
Activities

M
Support

Human Resource Management A


RG
Technological Development IN
Procurement

M Service
Operations

Outbound

Marketing
Logistics
Inbound

& Sales
Logistics

IN
G
R
A
Primary Activities
Value Creating Activities Common to a
Cost Leadership Business Level Strategy
Relatively Few
Cost Effective
MIS Systems Firm Infrastructure Management Layers to
Reduce Overhead
Activities

M
Support

Human ResourceEffective
Management
Consistent Policies to
Training Programs
to Improve Worker
Reduce Turnover Costs A
Efficiency and Effectiveness
RG
Technological Development
Easy-to-Use Manufacturing
Technologies
Investments in Technology in order
to Reduce Costs Associated with IN
Manufacturing Processes

Procurement
Systems and Procedures to find the
Frequent Evaluation Processes to
Lowest Cost Products to Purchase
Monitor Suppliers’ Performances
Raw Materials

M Service
Highly Efficient Delivery Schedule Effective Product
Operations

Outbound

Marketing
Systems to Link that Reduces Installations to
Logistics
Inbound

& Sales
Suppliers’ Logistics
Costs Reduce Frequency

IN
Products with the Timing of Asset Small, Highly and Severity
Firm’s Production Purchases

G
Selection of Low Trained Sales of Recalls
Processes

R
Cost Transport Force

A
Carriers

Located in Close Policy Choice of Natinal Scale


Proximity with Plant Technology Interrelationships Advertising
Suppliers with Sister Units

Primary Activities
Effective Cost Leaders can remain
profitable even when the
Five Forces appear unattractive
Effective Cost Leaders can remain profitable even when
the Five Forces appear unattractive

Threat of
New
Entrants

Can frighten off New Entrants


due to the need to:

* Enter at large scale to


be Cost Competitive
* Take time to move down
the “Learning Curve”
Effective Cost Leaders can remain profitable even when
the Five Forces appear unattractive

Can frighten off New Entrants due


Threat of to the need to:
New * Enter at Large Scale to be
Cost Competitive
Entrants
* Take time to move down the
“Learning Curve”

Can mitigate Buyer Power by: Bargaining


Power of
* Driving prices far below competitors Buyers
may cause exit and shift power back
to firm
Effective Cost Leaders can remain profitable even when
the Five Forces appear unattractive

Can frighten off New Entrants due


Well positioned relative toThreat
New
of to the need to:
* Enter at Large Scale to be
Substitutes in order to: Entrants Cost Competitive
* Take time to move down the
* Make investments to create “Learning Curve”
substitutes first
* Buy patents developed by Bargaining
potential substitutes Power of
Buyers
* Lower prices to maintain
value position
Can mitigate Buyer Power by:

Driving prices far below


Threat of competitors which may
cause exit and shift power
Substitute back to firm
Products
Effective Cost Leaders can remain profitable even when
the Five Forces appear unattractive

Can frighten off New Entrants due


Threat of to the need to:
Bargaining New * Enter at Large Scale to be
Cost Competitive
Power of Entrants
* Take time to move down the
Suppliers “Learning Curve”

Can mitigate Supplier Power by: Bargaining


Power of
Buyers
* Low cost position makes them better
able torelative
Well positioned absorb
to cost increases Can mitigate Buyer Power by:
Substitutes in order to:
* More likely to make very
* Make investments to create substitutes large purchases
Threat of
Driving prices far below
competitors which may
* which
Can buy reduces
patents developed
potential substitutes
chance
by of supplier
Substitute power
cause exit and shift power
back to firm
* Lower prices to maintain Products
value position
Effective Cost Leaders can remain profitable even when
Competitors avoid
the Five Forces appear unattractive
price wars with Cost
Can mitigate Supplier Power by: Leaders,
Can frighten offwhich
New Entrants due
Threat of creates higher
to the need to: profits
* Low cost position makes them
better able to absorb cost increases New * Enter at Large Scale to be

* More likely to make very large Entrants for entire


Cost industry
Competitive
* Take time to move down the
purchases which reduces chance “Learning Curve”
of supplier power

Bargaining Rivalry Among Bargaining


Power of Competing Firms Power of
Suppliers in Industry Buyers

Well positioned relative to Can mitigate Buyer Power by:


Substitutes in order to:
* Make investments to create substitutes Driving prices far below
Threat of competitors which may
* Can buy patents developed by cause exit and shift power
potential substitutes Substitute
back to firm
* Lower prices to maintain Products
value position
Major Risks of Cost Leadership
Business Level Strategy

Dramatic technological change could take


away your cost advantage

Competitors may learn how to imitate


Value Chain

Focus on efficiency could cause Cost Leader


to overlook changes in customer preferences
Generic Business Level Strategies
Source of Competitive Advantage

Cost Uniqueness

Broad Cost
Target
Market Leadership
Breadth of
Competitive
Scope
Narrow
Target
Market
Generic Business Level Strategies
Source of Competitive Advantage

Cost Uniqueness

Broad Cost Differen-


Target
Market Leadership tiation
Breadth of
Competitive
Scope
Narrow
Target
Market
Differentiation Business Level Strategy
Key Criteria: Eg Activa
Value provided by unique features
and value characteristics

Command premium price


High customer service
Superior quality

Prestige or exclusivity

Rapid innovation
Differentiation Business Level Strategy
Requirements:
Constant effort to differentiate products through:
Developing new systems and processes

Shaping perceptions through advertising

Quality focus

Capability in R&D

Maximize Human Resource contributions


through low turnover and high motivation
Value Creating Activities Common to a
Differentiation Business Level Strategy
Firm Infrastructure
Activities

M
Support

Human Resource Management A


RG
Technological Development IN
Procurement

M Service
Operations

Outbound

Marketing
Logistics
Inbound

& Sales
Logistics

IN
G
R
A
Primary Activities
Value Creating Activities Common to a
Differentiation Business Level Strategy
Highly Developed Information A companywide
Firm Infrastructure
Systems to better understand
customers’ purchasing preferences
emphasis on producing
high quality products
Activities

Compensation programs Extensive use of subjective Superior


M
Support

Human Resource Management


intended to encourage worker
creativity and productivity
rather than objective
performance measures
personnel
A
training

Coordination among R&D, Investments in technologies that will Strong


RG
Technological
product development and
marketing
Development
allow the firm to consistently produce
highly differentiated products
capability in
basic research
IN
Systems and procedures used to find Purchase of highest quality
Procurement
the highest quality raw materials
replacement parts

Superior Consistent Accurate and Strong Coordin- Complete field

M Service
handling of manufacturing of responsive order ation among stocking of
Operations

Outbound functions in R&D, replacement parts

Marketing
incoming raw attractive processing
Logistics
Inbound

Marketing and
Logistics

& Sales
materials to products procedures

IN
minimize Product
damage and Development

G
improve the

R
Rapid responses Extensive
quality of the Rapid and timely personal

A
to customers
final product unique product deliveries relationships
manufacturing to customers with buyers
specifications
Premium
Pricing

Primary Activities
Effective Differentiators can remain
profitable even when the
Five Forces appear unattractive
Effective Differentiators can remain profitable
even when the Five Forces appear unattractive
Threat of
New
Entrants

Can fend off New Entrants


because:

* New products must


surpass proven products
* Or be equal to performance
at lower prices
Effective Differentiators can remain profitable
even when the Five Forces appear unattractive
Can fend off New Entrants because:
Threat of New products must
*
New surpass proven products
Entrants * Or be equal to performance
at lower prices

Can mitigate Buyer Power because: Bargaining


Power of
Well differentiated products reduce Buyers
customer sensitivity to price increases
Effective Differentiators can remain profitable
even when the Five Forces appear unattractive
Can fend off New Entrants because:
Threat of New products must
*
New surpass proven products
Entrants * Or be equal to performance
at lower prices
Well positioned relative to
Substitutes because:
Bargaining
* Brand loyalty tends to Power of
reduce new product trial Suppliers
and brand switching
Can mitigate Buyer Power
because well differentiated
Threat of products reduce customer
Substitute sensitivity to price increases
Products
Effective Differentiators can remain profitable
even when the Five Forces appear unattractive
Can fend off New Entrants because:
Threat of New products must
*
New surpass proven products
Entrants * Or be equal to performance
at lower prices

Bargaining Can mitigate Supplier Power by:


Power of
Suppliers
* Absorbing price increases dueBargaining to
higher margins Power of
Well positioned relative to Suppliers
* Passing
Substitutes because:on higher supplier prices

because
* Brand buyers
loyalty tends to
reduce new product trial and
are brand loyal
Can mitigate Buyer Power
brand switching
Threat of because well differentiated
products reduce customer
Substitute sensitivity to price increases
Products
Effective Differentiators can remain profitable
even when the Five Forces appear unattractive

Can mitigate Supplier Power by:


Threat of Can fend off New Entrants because:
Absorbing price increases
*
due to higher margins New
*
Brand loyalty
New products must
* Entrants overcomes much
surpass proven products
Passing on higher supplier prices
because buyers are brand loyal * Or be equal to performance
price
at lowercompetition
prices

Bargaining Rivalry Among Bargaining


Power of Competing Firms Power of
Buyers in Industry Suppliers

Well positioned relative to


Substitutes because: Can mitigate Buyer Power
Threat of because well differentiated
* Brand loyalty tends to products reduce customer
reduce new product trial and Substitute sensitivity to price increases
brand switching Products
Major Risks of a Differentiation
Business Level Strategy

Customers may decide that the


cost of “uniqueness” is too great

Competitors may learn how to


imitate Value Chain

The means of uniqueness may no


longer be valued by customers
Generic Business Level Strategies
Source of Competitive Advantage

Cost Uniqueness

Broad Cost Differen-


Target
Market Leadership tiation
Breadth of
Competitive
Scope
Narrow
Target
Market
Generic Business Level Strategies
Source of Competitive Advantage

Cost Uniqueness

Broad Cost Differen-


Target
Market Leadership tiation
Breadth of
Competitive
Scope
Narrow Focused Focused
Target
Market Low Cost Differen-
tiation
Focused Business Level Strategies
Focused Business Level Strategies involve the same basic
approach as Broad Market Strategies.
However, opportunities may exist because:

Large firms may overlook small niches (Parle G wid


Mari Neutrlite)
Firm may lack resources to compete industry-wide
(Fly Mobile)
Minimize R&D costs by copying innovators

Focus can allow you to direct resources to certain


value chain activities to build competitive advantage
(Karbon- Distrbution)
Major Risks Involved With a Focused
Differentiation Business Level Strategy

Firm may be “outfocused” by competitors

Large competitor may set its sights on your


niche market

Preferences of niche market may change to


match those of broad market
Generic Business Level Strategies
Source of Competitive Advantage

Cost Uniqueness

Broad Cost Differen-


Target
Market Leadership tiation
Breadth of Integrated
Competitive Low Cost/
Scope Differentiation
Narrow Focused Focused
Target
Market Low Cost Differen-
tiation
Integrated Low Cost/Differentiation Strategy
Firms using an Integrated Strategy may:
Adapt more quickly
Learn new skills and technologies

Utilize Flexible Manufacturing Systems to create


differentiated products at low costs
Leverage core competencies through Information
Networks across multiple business units

Utilize Total Quality Management (TQM) to


create high quality differentiated products which
simultaneously driving down costs
Integrated Low Cost/Differentiation Strategy

Recognize that the Integrated Low Cost/


Differentiation business level strategy involves a
Compromise

The risk is that the firm may become “Stuck in


the Middle” lacking a strong commitment to or
expertise with either type of generic strategy
Thank You