Chapter 5: Business-Level Strategy - Creating and Sustaining Competitive Advantage

Vocabulary and key concepts from Chapter 5 notes on business-level strategies, competitive advantage, and industry life-cycle stages.

Business-Level Strategy

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

Generic Strategies

Basic types of business level strategies based on the breadth of the target segment and the type of competitive advantage (cost or differentiation).

Overall Cost Leadership

A strategy aimed at providing low cost on an industrywide market through efficient-scale facilities, tight cost control, and experience curves.

Experience Curve

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

Broad Differentiation

A strategy focusing on uniqueness and value on an industrywide market, emphasizing prestige, brand image, innovation, or customer service.

Focus Strategy

A strategy designed to appeal to a narrow market segment by tailoring products and services to specific needs through cost focus or differentiation focus.

Combination Strategy

A strategy that integrates overall low cost and differentiation to provide high value to customers in a cost-efficient manner.

Stuck in the Middle

The pitfall of firms that fail to attain both low cost and differentiation strategies, resulting in neither and a lack of competitive advantage.

Buyer Value

Refers to the consumer’s total willingness to pay for a product or service.

Cost Advantage

A competitive advantage attained by having lower costs than the competition.

Differentiation Advantage

A competitive advantage attained by increasing the consumer's willingness to pay through unique product attributes.

Introduction Stage (Industry Life-Cycle)

The initial phase where strategies include product development, investing in R&D, and being a first mover to appropriate customers and channels.

Growth Stage (Industry Life-Cycle)

The phase where effective strategies include building brand recognition and seeking financial resources to support value chain activities.

Maturity Stage (Industry Life-Cycle)

The phase where strategies focus on efficient manufacturing and reverse positioning as consumers become price sensitive.

Reverse Positioning

A maturity stage strategy where firms offer products with fewer attributes and lower prices.

Decline Stage (Industry Life-Cycle)

The phase where effective strategies include maintaining, harvesting, exiting, or consolidating.

Harvesting

A decline stage strategy involving the quick reduction of costs to obtain as much profit as possible in the short and medium term.

Consolidating

A decline stage strategy where a firm acquires or merges with other firms to enhance market power.

Competitive Advantage (Quantitative)

Identified when a company achieves a higher rate of return on assets, represented as $ROA$, compared to the industry average.