Chapter 5: Business-Level Strategy

Business-Level Strategy

A strategy designed for a firm or a division of a firm that competes within a single business.

Three Generic Strategies

Overall cost leadership, differentiation, and focus.

Generic Strategies Definition

Basic types of business-level strategies based on breadth of target market and type of competitive advantage.

Stuck in the Middle

Firms that fail to identify with any type of advantage and perform the lowest in profitability and growth.

Overall Cost Leadership

A firm's generic strategy based on appeal to the industrywide market using a competitive advantage based on low cost.

Experience Curve

The decline in unit costs of production as cumulative output increases.

Competitive Parity

A firm's achievement of similarity or being on par with competitors with respect to low cost or differentiation.

Cost Leadership Five Forces Protection

Protects against rivalry, powerful buyers, powerful suppliers, substitute products, and new entrants.

Cost Leadership Pitfalls

Too much focus on few activities, easy imitation, lack of differentiation parity, reduced flexibility, and obsolescence.

Differentiation Strategy

A generic strategy based on creating differences perceived industrywide as unique and valued by customers.

Differentiation Five Forces Protection

Lowers customer price sensitivity, raises switching costs, builds entry barriers, and reduces supplier and buyer power.

Differentiation Pitfalls

Uniqueness not valuable, too much differentiation, high price premium, easy imitation, and brand dilution.

Focus Strategy

A generic strategy based on the choice of a narrow competitive scope within an industry.

Cost Focus vs Differentiation Focus

Cost focus creates a cost advantage in a target segment; differentiation focus seeks to differentiate in a target market.

Focus Strategy Pitfalls

Eroding cost advantages, susceptibility to imitation and new entrants, and becoming too focused to satisfy buyer needs.

Combination Strategies

Firms' integrations of various strategies to provide multiple types of value to customers.

Mass Customization

A firm's ability to manufacture unique products in small quantities at low cost.

Profit Pool

The total profits in an industry at all points along the industry's value chain.

Unscaling

Building small-scale operations using technology and external suppliers to meet customer needs efficiently.

Combination Strategy Pitfalls

Failing to attain both strategies ending up stuck in the middle, and underestimating coordination expenses.

Atlas Door Case Study

Demonstrated sustainable competitive advantage through just-in-time factories, fast order processing, and tight logistics.

Two-Sided Platform Markets

Markets where firms act as intermediaries between two sets of platform users: buyers and sellers.

Industry Life Cycle

The stages of introduction, growth, maturity, and decline that typically occur over the life of an industry.

Introduction Stage

Characterized by unfamiliar products, poorly defined segments, low sales growth, rapid technological change, and operating losses.

Growth Stage

Characterized by strong sales increases, growing competition, developing brand recognition, and resource needs for marketing.

Maturity Stage

Characterized by slowing demand growth, saturated markets, direct competition, price competition, and efficient operations.

Reverse Positioning

Offering products with fewer attributes and lower prices by stripping away sacred industry product features.

Breakaway Positioning

Associating a product with a radically different category to change consumption and competitive landscape.

First-Mover Advantages

Gaining recognizable global brands, locking in sales channels, and setting industry standards.

Turnaround Strategy

Strategies that enable a firm to reposition its competitive position and reverse performance declines in an industry.