mgt 405: chapter 5 - business level strategy

what is competitive advantage?

a firms availability to outperform its rivals by creating superior value for customers.

what is the central goal of a business level-strategy?

to determine how a firm competes in a specific industry or market to achieve and sustain a competitive advantage

what are porters three generic strategies?

overall cost leadership, differentiation, and focus

how do generic strategies help overcome the five forces?

they improve a firms power against suppliers, buyers, substitutes, new entrants, and rivalry

what is the main objective of a cost leadership strategy?

to achieve the lowest cost structure in the industry while maintaining acceptable quality

what are the key activities in cost leadership?

efficient-scale facilities, cost reductions through experience, tight cost control, minimizing overhead.

what is the experience curve in cost leadership?

unit costs decline as cumulative output increases due to learning and efficency

what is competitive parity in cost leadership?

being on par with competitions in differentiation while maintaining cost advantage.

what are the advantages of cost leadership against the Five forces.

protects against rivalry, reduces buyer and supplier power, creates entry barriers, and low prices make substitutes less attractive.

what are common pitfalls of cost leadership?

overemphasis on cost, imitation by competitors, loss of differentiation parity, and outdated cost advantages.

what is the goal of a differentiation strategy?

to offer unique products that customer perceive as valuable and are willing to pay a premium for.

what are the common bases for differentiation?

brand image, quality, technology, features, innovation, customer service, and dealer network.

what is required for successful differentiation?

achieving cost parity with competitors, integration across the value chain, and being responsive to customer needs.

how does differentiation help against the five forces

builds customer loyalty(new entrants), higher margins(suppliers), less price sensitivity(buyers), and lower threat of substitutes. 

what are the pitfalls of differentiation?

unvalued uniqueness, excessive differentiation, high price premium, imitation, brand dilution, and perception mismatches

what is the main idea behind a focus strategy?

concentrate on a narrow market segment and serve it more effectively than competitors.

what are the two variants of focus strategy?

cost focus and differentiation focus.

how does a focus strategy provide advantage?(porters

high entry barriers in the focused niche, customer loyalty, lower buyer power due to specialization, higher margins to handle supplier power

what are pitfalls of focus strategy?

erosion of cost advantage, imitation by larger competitors, being too narrowly focused to meet customer needs.

what is a combination strategy?

integrating low-cost and differentiation advantages simultaneously to create unique value efficiently. 

what tools enable combination strategies?

flexible manufacturing, data analytics, profit pool exploitation, and unscaling through partnerships

what are the benefits of a combination strategy(five forces)?

high entry barriers, high margins to resist supplier pressure, reduced buyer power, broader value proposition.

what are some pitfalls of combination strategies?

being “stuck in the middle”, coordination costs across the value chain, underestimating costs of integration, and miscalculated profit sources. 

what are the four stages of the industry life cycle?

introduction, growth, maturity, decline

what is the strategic focus in the introduction stage?

building product awareness, emphasizing product innovation, and investing in marketing and distribution.

what is the strategic focus in the growth stage?

differentiating brand and quality, scaling production, encouraging selective demand

what are some characteristics of the growth stage?

rapidly increasing sales and demand, the market becomes attractiveness to entrants, and opportunity to build brand recognition.

what is the strategic focus in the maturity stage?

emphasizing efficiency and cost reduction, using process innovations to stay profitable, adopt reverse positioning or breakaway positioning, and brand reinforcements.

what are some characteristics of the maturity stage?

industry demands slows, market becomes saturated, competition intensifies, weaker firms exit the industry.

what is the strategic focus in the decline stage?

maintain profitable niches, harvest remaining profits, exit market if unprofitable, or consolidate(acquire or merge with competitiors)

what are some characteristics of the decline stage?

sales and profits fall, excess capacity and price competition rise, industry consolidations occur.

what is a retrenchment(turnaround) strategy?

a plan to reverse performance decline by reducing costs and refocusing resources.

what are the three main types of retrenchment actions?

asset and cost surgery, selective market and product pruining, and piecemeal productivity improvements.

what is the goal of a retrenchment strategy?

restore profitability, improve efficency, and rebuild strategic focus.