Business-Level Strategy
Study outcome
1.Define business-level strategy.
2.Discuss the relationship between customers and business-level strategies in terms of who, what, and how.
3.Explain the differences among business-level strategies.
4.Use the five forces of competition model to explain how above-average returns can be earned through each business-level strategy.
5.Describe the risks of using each of the business-level strategies.
Business-Level Strategy
•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.
Customers: Their Relationship with Business-Level Strategies
•Firms’ relationships with customers are characterized by three dimensions
•Reach, Richness, and Affiliation
–The reach dimension of relationships with customers is concerned with the firm’s access and connection to customers.
–Richness is concerned with the depth and detail of the two-way flow of information between the firm and the customer.
–Affiliation is concerned with facilitating useful interactions with customers.
Customers: Their Relationship with Business-Level Strategies
•Who: Determining the Customers to Serve
–Market segmentation is a process used to cluster people with similar needs into individual and identifiable groups.
Basis for Customer Segmentation
Consumer Markets
1.Demographic factors (age, income, sex, etc.)
2.Socioeconomic factors (social class, stage in the family life cycle)
3.Geographic factors (cultural, regional, and national differences)
4.Psychological factors (lifestyle, personality traits)
5.Consumption patterns (heavy, moderate, and light users)
6.Perceptual factors (benefit segmentation, perceptual mapping)
Basis for Customer Segmentation
Industrial Markets
1.End-use segments (identified by SIC code)
2.Product segments (based on technological differences or production economics)
3.Geographic segments (defined by boundaries between countries or by regional differences within them)
4.Common buying factor segments (cut across product market and geographic segments)
5.Customer size segments
Customers: Their Relationship with Business-Level Strategies
•What: Determining Which Customer Needs to Satisfy
–In a general sense, needs (what) are related to a product’s benefits and features.
•How: Determining Core Competencies Necessary to Satisfy Customer Needs
–Firms use core competencies (how) to implement value-creating strategies and thereby satisfy customers’ needs.
Types of Business-Level Strategies Five Business-Level Strategies
Cost Leadership Strategy
•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 cost, relative to that of competitors.
Cost Leadership Strategy
Examples of Value-Creating Activities Associated with the Cost Leadership Strategy
Differentiation Strategy
•The differentiation strategy is an integrated set of actions taken to produce goods or services (at an acceptable cost) that customers perceive as being different in ways that are important to them.
Differentiation Strategy
Examples of Value-Creating Activities Associated with the Differentiation Strategy
Risks associated with the differentiation strategy
•a customer group’s decision that the differences between the differentiated product and the cost leader’s goods or services are no longer worth a premium price;
•the inability of a differentiated product to create the type of value for which customers are willing to pay a premium price;
•the ability of competitors to provide customers with products that have features similar to those of the differentiated product, but at a lower cost; and
•the threat of counterfeiting, whereby firms produce a cheap “knockoff” of a differentiated good or service.
Focus Strategies
•The focus strategy is an integrated set of actions taken to produce goods or services that serve the needs of a particular competitive segment.
–Focused Cost Leadership Strategy
–Focused Differentiation Strategy
Focused Cost Leadership Strategy
Focused Differentiation Strategy
Integrated Cost Leadership/Differentiation Strategy
•The integrated cost leadership/differentiation strategy involves engaging in primary and support activities that allow a firm to simultaneously pursue low cost and differentiation
Integrated Cost Leadership/Differentiation Strategy Clip1 Clip2
Think?
•Nok Air Clip
Clip
•What does the strategy these firms use?
Assignment
•In groups, choose a firm in logistics or transport business.
•Gather information, analyse the firm and answer questions
–What is the business strategy that the firm use to compete its rivals?
•Answer in 1 page of A4.
•Pass the answer sheet to lecturer at the beginning of the next class.
•1-2 groups will be selected randomly to give a presentation in 3-5 minutes.