Business Level Strategy and Competitive Positioning

Transcription

1 Business Level Strategy and Competitive Positioning Chapter By now teams should have gone to the course materials webpage and signed up for their Oral Presentation and evaluation 5 2 All men can see these tactics whereby I conquer but what none can see is the strategy out of which victory evolves. - Sun Tzu 5 3 Chapter 5 1

2 Business Level Strategy The plan of actions that managers adopt to use resources and distinctive competencies to gain a competitive advantage 5 4 Michael Porter s Business Level Strategies 5 5 What? Who? How? Basis of choosing a business level strategy by determining how well a company can compete What customer need will be satisfied? Who is to be satisfied? How will the need be satisfied? 5 6 Chapter 5 2

3 What are customer needs? What role do they play in competitive strategy? 5 7 Product Differentiation The process of creating a competitive advantage by designing goods or services to satisfy customers needs. The greater the differentiation, the more money a customer will pay for the product 5 8 What s the process and the purpose of understanding customer groups? 5 9 Chapter 5 3

4 So, what if we don t segment the market? When might that make sense? 5 10 What role do our firm s distinctive competencies play at this point? 5 11 Business-level or Competitive Strategy Three basic competitive approaches: Cost Leadership- To outperform competitors by doing everything it can to produce goods or services at the lowest possible cost. Differentiation- The differentiated product has the ability to satisfy a customer s need in a way that t competitors cannot. Focus- Directed toward serving the needs of a limited customer group or segment. This answers the question, How shall we compete? 5 12 Chapter 5 4

5 Cost-Leadership Strategy The goal of this strategy: Outperform competitors by doing everything at a lower cost Cost leader chooses low level of differentiation parity with the industry standards for the lowest level of product features and service Positions the product to appeal to the average customer Thus, you can see that cost leaders must make choices about products, markets, and distinctive competencies Cost-Leadership Strategy Advantages: May be able to charge lower price than competitors but make the same level of profit Withstand t competition based on price Disadvantages: Easy to lose sight of changes in customers taste / tough to respond to changes that do come about Strategy is imitable (meaning competitors will try to beat the cost leader at its own game) 5 14 So, if we choose a costleadership strategy, what does that mean we need to do? 5 15 Chapter 5 5

6 Differentiation Strategy The Goal here: To achieve a competitive advantage by creating a product that customers perceive as unique in some important way A differentiated company can charge a premium price If. (what is the case?) 5 16 Differentiation Strategy Advantages: Customers may develop brand loyalty for a product Successful differentiation creates barriers to entry for other companies Disadvantages: Difficult (that means costly and subject to mistakes) to maintain uniqueness in the customer s s eye Threat of substitute products 5 17 Cost Leadership and Differentiation Flexible manufacturing strategies make the choice between these two strategies less clearcut The new flexible manufacturing technologies makes diversification inexpensive for firms, allowing firms to obtain benefits of both strategies 5 19 Chapter 5 6

7 Focus Strategy Goal: To serve the needs of a limited customer group or segment Concentrate (i.e. focus) on serving a: Geographic area (this is a common decision for smaller firms) Type of customer (this is a common decision for larger firms) Portion of the product line 5 20 Focus Strategy Advantages: Customer loyalty lessens the threat of substitutes Power over buyers because they cannot get the same product elsewhere Disadvantages: Suppliers have power over focused firms, making the firms vulnerable to changes Vulnerable to attack, therefore must define its niche constantly 5 21 Strategy in Fragmented or Growing Industry Focus strategy stands out as the best choice through: Chaining allows cost advantage and amazing buying power to promote competitive advantage. Franchising solves the problem of maintaining control over each location and retaining uniqueness. Horizontal Mergers consolidate an industry to secure a market. Using the Internet consolidates fragmented industries globally Chapter 5 7

8 Strategy in a Mature Industry In a mature industry it is crucial to adopt a strategy that will simultaneously preserve competitive advantages while preserving industry profitability Interdependent companies adopt strategies to: Manage rivalry Deter entry 5 23 Strategies for Deterring Entry of Rivals 5 24 Factors that Determine the Intensity of Competition in Declining Industries 5 27 Chapter 5 8

9 Four Competitive Strategies that don t depend on pricing 5 28 Although firms prefer nonprice competition, price competition sometimes breaks out When is that? 5 29 Strategy in a Declining Industry When market is shrinking, competition tends to intensify and profit rates tend to fall Strategies to deal with decline include: Leadership Strategy- involves a company seeking to become the dominant player in the industry (often through consolidation) Niche Strategy- focuses on pockets of demands that are declining more slowly Harvest Strategy- optimizes cash flow for a short period of time Divestment Strategy- occurs when a company sells off its business to others (the flip side of consolidation) 5 30 Chapter 5 9

10 Strategy Selection in a Declining Industry 5 31 Chapter 5 10