2/2 Business Level Strategies

  • Cost Leadership: Aiming to become the lowest-cost producer in the industry, allowing for competitive pricing while maintaining profitability.

  • Differentiation: Offering unique products or services that stand out from competitors, justifying higher prices due to perceived value.

  • Focus Strategy: Targeting a specific market segment, tailoring strategies to serve that niche more effectively than competitors.

  • Broad and Focused on chart

    • strategic position

    • competitive scope; broad or focused

Strategic Trade-Offs

  • firms choose between chost/price and

  • trade-offs exist between:

    • creating value

    • keeping costs low

  • purpose of trade off are to maximize

    • economic value creation

    • profit margin

Primary generic business strategy

  • Cost leadership

    • products and services produced at lower cost

    • equal or similar value to competitors

    • charge lower prices or increase profit margin

  • differentiation

    • products or services have unique features

    • creates higher value than competitors products or services

    • attempt to keep costs low

    • can charge higher prices increase profit margin

Focused business strategies

  • focus on narrow market/customer base

    • focused differentiation

      • antrhopologie focused on selling unique stuff

    • focused cost leadership

      • dollar general does not offer full array of consumer goods

  • remember focused means engaging in a narrow target market, not a narrow product line

Differentiation Strategy

  • unique features that increase value of goods and services

  • consumers may be willing to pay a higher price

  • differentiation areas

    • price

    • quality

    • features

    • marketing

  • competitive advantage achieved when

    • value - cost > competitors

  • benefits

    • loyalty

    • unique products

    • better profit margins

  • disadvantages

    • perceived value may change over time

    • may exclude some buyers

    • can increase costs

Focused Differentiation Strategy

  • unique features for select segments or customers

  • can include

    • segments overlooked by large competitiors

    • unfuliflled needs in the market

    • choosing most productive segments

    • company has specific expertise, experience

    • example: whole foods

  • disadvantages

    • decrease addressable market opportunity

    • scaling business may be a challenge

    • overly dependent on changing customer preferences

Cost leadership strategy

  • goal

    • reduce firm’s cost below competitors

    • offer adequate value

  • resources focused on

    • relatively standard products

    • select segments or features acceptable to many customers

    • ability to offer lowest price

  • low cost does not mean low price

  • Advantages

    • economies of scale

    • create barriers to entry

    • resilient and adaptable in face of change

  • disadvantages

    • easy to imitate but expensive

    • perception of quality

    • competitive pressure

    • reduced customer loyalty

ACTIVITY

Broad Cost: Ford, Honda

Broad Differentiation: Chrysler, Toyota, Mercedes

Focus Differentiation: Tesla, Rolls Royce, Lamborghini

Focus Cost: Nissan, Tata