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Strategic Management
Chapter 5 - Business Level Strategy
28
Business
Undergraduate 4
05/31/2012

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Term
Business-level Strategy
Definition
A business-level strategy is 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
Term
Central Role of Customers
Definition

In selecting a business-level strategy, the firm must determine:

  1. Who it will serve
  2. What needs those target customers have that it will satisfy
  3. How those needs will be satisfied
Term
Market Segmentation
Definition
Market segmentation is a process used to cluster people with similar needs into individual and identifiable groups
Term

Basis for Customer Segmentation

Consumer Markets

Definition

Demographic (age, income, gender)

Socioeconomic (social class, stage in family life cycle)

Geographic (culture, region or country differences)

Psychological (lifestyle, personality)

Consumption Patters (heavy, moderate, light users)

Perceptual factors (benefit segmentation)

Brand loyalty patterns

Term

Basis for Cosoomer Segmentation

Industrial Markets

Definition
  1. End use segments - NAIC code
  2. Product segments - technology differences / product economics
  3. Geographic segments - country boundaries / regional differences
  4. Common buying factor segments - cut across product / market and geographic segments
  5. Customer size segments
Term
Cost Leadership Strategy
Definition

The cost leadership strategy is an integrated set of actions taken to produce goods or services with features that are acceptable to customers at the lowest relative cost, relative to that of the competitors

 

Term
How do you obtain a Cost Advantage
Definition
  1. Determine and Control Cost Drivers
  2. Reconfigure teh Value Chain as needed
Term

Cost Leadership Strategy - 5 Forces

Rivalry with Existing Competitors

Definition
Competitors avoid price wars with cost leaders, creating higher profits for the entire industry
Term

Cost Leadership Strategy - 5 Forces

Power of Buyers (Customers)

Definition
Buyers' power can be mitigated by driving prices far below competitors and cause exit and shift power back to firm
Term

Cost Leadership Strategy - 5 Forces

Power of Suppliers

Definition
Suppliers' power can be mitigated by being able to absorb cost increases due to low cost position and being able to make very large purchases, reducing chance of supplier using power
Term

Cost Leadership Strategy - 5 Forces

Threat of New Entrants

Definition
Can frighten off new entrants due to their need to enter on a large scale in order to be cost competitive, and the time it takes to move down the learning curve
Term

Cost Leadership Strategy - 5 Forces

Threat of Substitute Products

Definition
Well positioned products relative to substitutes because brand loyalty to a differentiated product tends to reduce customers' testing of new products or switching brands
Term

Major risks of Cost Leadership

Business Level Strategy

Definition
  1. dramatic technology change could take away your advantage
  2. competitors may learn how to imitate value chain
  3. focus on efficiency could cause Cost Leader to overlook changes in customer preferences
Term
Differentiation Strategy
Definition
A differentiated strategy is an integrated set of actions designed by a firm to product or deliver goods or services that customers perceive as being different in ways that are important to them
Term
How to obtain a Differentiation Advantage
Definition
  • lower buyers costs
  • raise performance of product or service
  • Create sustainability through:
    • customer perception of uniqueness
    • customer reluctance to switch to non-unique product
Term

Differentiation Strategy and the Five Forces

Rivalry Among Competitors

Definition
Can defend against competition because brand loyalty to differentiated product offsets price competition
Term

Differentiation Strategy and the Five Forces

Power of Buyers

Definition
Can mitigate buyer power because well differentiated products reduce customer sensitivity to price increases
Term

Differentiation Strategy and the Five Forces

Power of Suppliers

Definition
Can mitigate supplier's power by absorbing price increases due to higher margins, and passing along higher supplier prices because buyers are loyal to differentiated brand
Term

Differentiation Strategy and the Five Forces

Threat of New Entrants

Definition
Can defend against new entrants because new products must surpass proven products, or new products must be at least equal to performance of proven products, but offered at lower prices
Term

Differentiation Strategy and the Five Forces

Threat of Substitute Products

Definition
Well positioned relative to substitutes because brand loyalty to a differentiated product tends to reduce customers' testing of new products or switching brands
Term
Major Risks of a Differentiation Business-level strategy
Definition
  1. Customers decides that differentiation between the differentiators product and the cost leaders price is too large
  2. A firm's means of differentiation may cease to provide value for which customers are willing to pay
  3. The means of uniqueness may no longer be valued
Term
Focus Strategies
Definition
Focus Strategies are an integrated set of actions designed to produce or deliver goods or services that serve the needs of a particular competitive segment
Term

Focused Business-level Strategies

Opportunities may exist because:

Definition
  • firms may lack resources to compete industry wide
  • large firms may overlook small niches
  • the firm may be able to serve a narrow market segment more effectively than industry wide competitors
  • focus can allow you to direct resources to certain value chain activities to build competitive advantage
Term

Focused Business-level strategies have

 

Definition
  • differentiated features with low cost products
  • minimize R&D costs by copying innovators
  • focused differentiators may thrive by selecting a small market that is undeserved by large players
Term

Major Risks involved with a Focused Differentiation business-level strategy

 

Definition
  1. firm may be out focused by competitors
  2. large competitor may set its sights on your niche market
  3. preferences of niche market may change to match those of broad market
Term

Integrated Low Cost / Differentiation

Firms using an integrated strategy may:

Definition
  • adapt more quickly
  • learn new skills and technologies
  • leverage core competencies while competing against its rivals
  • may utilize Flexible Manufacturing Systems to create differentiated products at low costs
Term
Flexible Manufacturing Systems
Definition

Information networks

Total Quality Management Systems (TQM)

Term
Total Quality Management - TQM
Definition
  1. meeting customer expectations while striving to exceed them
  2. focusing on work activities to drive out waste
  3. focus on continuous improvement
  4. develop the flexibility to spot opportunities to simultaneously increase differentiation and / or drive out costs
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