Chapter 4 - Business-Level Strategy

Vocabulary-style flashcards covering key concepts from Chapter 4: Business-Level Strategy, including definitions of business-level strategy, models, and the five main strategic approaches.

Business-level strategy

An integrated and coordinated set of commitments and actions a firm uses to gain a competitive advantage by exploiting core competencies in a specific product market.

Digital strategy

A strategy that uses digital technology to understand customers and their needs to create more value; relies on information and analytics and is developed with other firm strategies.

Strategic competitiveness

Achieved when a firm satisfies customers through its competitive advantages in individual product markets, leading to above-average returns.

Market segmentation

The process of dividing customers into groups based on differences in needs to cluster similar needs into identifiable segments.

End-use segments (SIC)

Segments identified by Standard Industrial Classification codes based on how customers use a product.

Product segments

Segments based on technological differences or production economics.

Geographic segments

Segments defined by geographic boundaries or regional differences.

Common buying factor segments

Segments that cut across product markets and geographic regions based on shared buying factors.

Market segmentation basis (Table 4.1)

Categories such as demographic, socioeconomic, geographic, psychological, consumption patterns, perceptual factors, SIC/end-use, product segments, geographic segments, and common buying factors.

Who to serve (target customers)

Deciding the groups of customers to serve by dividing them into segments with differing needs.

Core competencies

Resources and capabilities that provide a source of competitive advantage and must be innovated and upgraded over time.

Strategic human resource management

HR practices that reflect industry best practices or best-fit with the external environment to support strategy.

Business model

A framework describing what a firm does to create, deliver, and capture value for stakeholders; influences how a strategy is implemented.

Business model innovation

Replacing an outdated business model with a newer one; difficult due to organizational inertia.

Inertia

Forces that cause an organization to resist change, making business-model changes challenging.

Freemium model

A business model offering basic services for free while charging for premium features.

Advertising model

A business model generating revenue by selling advertising space or opportunities.

Peer-to-peer model

A model that enables direct exchanges between individuals (P2P). 1

Franchise model

A firm licenses its trademark and processes to franchisees; franchisor earns fees/royalties and may supply products.

Franchisee vs franchisor

Franchisee buys rights to operate under the brand; franchisor earns ongoing fees and support revenue.

Subscription model

Product or service offered on a regular basis (monthly/yearly) or on-demand (e.g., Netflix, Blue Apron).

Digital platform business model

A model that facilitates exchanges among stakeholders via an internet platform; scales rapidly and often earns revenue through various means.

Innovation platform

A type of digital platform that enables development of complementary products/services (e.g., Android, Google).

Transaction platform

A digital platform that facilitates buying and selling of goods/services.

Five business-level strategies

Cost leadership, differentiation, focused cost leadership, focused differentiation, and integrated cost leadership/differentiation.

Cost leadership strategy

An integrated set of actions to produce acceptable products at the lowest cost; targets typical customers with standardized goods.

Cost leadership – primary activities

Emphasis on inbound and outbound logistics and other activities to reduce costs.

Cost leadership – risks and forces

Rivalry, buyer/supplier power, entrants, and substitutes can threaten a cost leader; efficiency and low-cost position create barriers.

Cost leadership – competitive rents

Sustained cost advantage can enable above-average returns despite competitive forces.

Differentiation strategy

An integrated set of actions to produce products perceived as different in ways that matter to customers.

Differentiation – key requirement

Product innovation and upgrading features to create unique value that customers are willing to pay a premium for.

Differentiation – value chain

Linking activities across the value chain to deliver distinctive features and value.

Differentiation – brand loyalty

Strong perceived differences can lead to customer loyalty and reduced price sensitivity.

Differentiation – risks

If features no longer matter or competitors imitate differentiators at lower cost, differentiation can erode.

Focus strategies

An integrated set of actions to serve the needs of a particular market segment; includes focused cost leadership and focused differentiation.

Focused cost leadership

Cost leadership targeted at a narrow segment; activities mirror industry-wide cost leadership but for a focused group.

Focused differentiation

Differentiation targeted at a narrow segment; features tailored to a specific customer group.

Integrated cost leadership/differentiation

Strat that seeks low cost while offering some differentiating features; requires flexibility and multiple capabilities.

Flexibility sources (integrated strategy)

Flexible manufacturing systems, information networks, and total quality management (TQM) enable simultaneous low cost and differentiation.

Flexible Manufacturing System (FMS)

Computer-controlled manufacturing that handles various products with low manual intervention and quick switching.

Information networks

Links among suppliers, distributors, and customers; CRM is a key process within information networks.

Customer Relationship Management (CRM)

An information-network process for managing interactions with customers to meet expectations.

Total Quality Management (TQM)

Systematic tools and practices to deliver high quality, increase satisfaction, cut costs, and enable flexibility.

Competitive risks of integrated strategy

The risk of being stuck in the middle—neither low-cost nor differentiated—and earning only average returns.