Business Strategy Chapter 5

Topics: Product differentiation, Strategic management, Marketing Pages: 18 (5135 words) Published: May 29, 2013
Instructor’s Manual


Illustration 5.1
The strategy clock It is important that students get a grasp of the basis of competitive strategy, and the strategy clock helps them to do this. However, they should not assume that these strategies are static. The questions here help them understand how the basis of competitive strategy may change over time. • Route 1 on the strategy clock may provide an opportunity for entry because large players may have vacated that space in the market as they try to add value rather than compete on price in what may have become commodity-type markets. In the specific instance of the car industry in the 1960s and 1970s, Western producers were operating with a relatively high cost base compared with Japanese entrants from what was then a low-cost producer nation. The result was that the Japanese did not face markedly higher quality competition, but they could readily compete on price. Trading up through routes 2 and 3, as the Japanese did, is an interesting phenomenon. Why did the market leaders not respond? Was this solely a function of the Japanese cost structure? Was it to do with the speed of innovation in Japanese firms? Or the inertia of existing market leaders? Entering through route 5 and moving elsewhere is discussed explicitly at the end of section 5.3.4. As is pointed out there, this entails a lowering of price, and therefore cost, while maintaining differentiating features. It also means moving from a focused approach to a less focused approach. Neither of these moves is easy, usually because the competences of the firm have become attuned to more focus and less emphasis on cost; but also because the market may well regard such a firm as segment specific and therefore be wary of such a move. Nissan was driven into position 8 from which it needed to re-position.. For example, if it tried to move to the hybrid position – differentiated but at lower prices (and, therefore, lower costs) – this requires the organisation to be very clear about the critical success factors with consumers, and the competences required to deliver these features.

Illustration 5.2
The ‘no frills’ strategy easyJet is a good example of a no frills strategy. The questions require students to consider the basis of such a strategy and also the extent to which it is imitable. Many of these are laid out in the illustration. Clearly easyJet’s strategy is not based on its being 78

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Instructor’s Manual

lowest cost in the marketplace if this is dependent on market share in the overall market for air travel. There are obviously other bigger players. The more relevant comparison, however, is by market segment. To what extent is the early entry of easyJet into the budget travel segment and its establishing of a substantial market share sufficient basis, in itself, to achieve lowest cost? Could actual and potential competitors, seeing the success of easyJet, imitate and overtake it in delivering such services? Does easyJet’s experience in all this, and its undoubted entrepreneurial culture, provide lasting advantage? Certainly British Airways found it uncomfortable to compete with its GO Operation, and decided this was better sold off. But other competitors such as Ryanair and BMIBaby had entered the market and engaged in fierce price competition on some routes. So the keys to success were skilful pricing between routes, when people book and capacity fill. And what if the most experienced low-cost operator of all, South West Airlines in the US, decided to enter Europe?

Illustration 5.3
Questionable bases of differentiation Question 1 challenges students to consider what would be appropriate bases of differentiation in the biscuit business. The principles outlined in (a), (b) and (c) may be applied: (a) Who is the most important customer in strategic terms? Of course the end consumer is important, but strategically the retailer is vital. (b) The question...
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