Compatibility Model

Topics: Product differentiation, Strategic management, Marketing Pages: 14 (1815 words) Published: March 29, 2013
Chapter 4:

BUSINESS-LEVEL STRATEGY (chapter 5 in the textbook)


“I surf to where hockey balls will be there….

not where it has to roll over.”
- Wayne Gretsky

Strategic model




4 levels of strategy • Function-level strategy • Business-level strategy • Corporate-level strategy • International strategy 3

Business Strategy - BUSN 162


Business-level strategy
Business-level strategy: an integrated and coordinated set of Businessstrategy: commitments and actions the firm uses to gain a competitive advantage by exploiting core competencies in specific product markets Strategy makes following decisions: 1. Customer’s needs– WHAT needs will be satisfied? 2. Customer groups WHO will be served? 3. Distinctive competencies HOW will those needs be satisfied?

These decisions determine which strategies will be formulated and implemented to put a business model into operation. 4

Who: Determining the Customers to Serve Market segmentation
A process used to cluster people with similar needs into individual and identifiable groups.

All Customers
Consumer Markets Industrial Markets


Identify customer groups and market segments


Business Strategy - BUSN 162


Three approaches for segmentation


What: Determining Which Customer Needs to Satisfy

Customer needs are related to a product’s benefits and features. A firm’s ability to meet customer needs creates VALUE for the customer. Two forms of value: Low cost Unique, or differentiated product



How: Determining Core Competencies Necessary to Satisfy Customer Needs

Firms use core competencies to implement value-creating strategies that satisfy customers’ needs. Only firms with capacity to continuously improve, innovate and upgrade their competencies can expect to meet and/or exceed customer expectations across time. 9

Business Strategy - BUSN 162


The Purpose of a Business-Level Strategy Business-Level Strategies • Are intended to create differences between the firm’s position relative to those of its rivals.

To position itself, the firm must decide whether it intends to: • Perform activities differently or • Perform different activities as compared to its rivals.


Two Choices for Business Level Strategies Types of potential competitive advantage • Achieving lower overall costs than rivals • Possessing the capability to differentiate the firm’s product or service and command a premium price

Types of competitive scope
• Broad scope • Narrow scope


Generic Business Level Strategies
Source of Competitive Advantage
Cost Differentiation

Breadth of Competitive Scope

Broad Target Market

Cost Leadership


Narrow Target Market

Integrated Cost Leadership/ Differentiation Focused Cost Focused Leadership Differentiation


Business Strategy - BUSN 162


Cost Leadership Strategy


Cost Leadership Strategy
An integrated set of actions taken to produce goods or services with features that are acceptable to customers at the lowest cost, relative to that of competitors with features that are acceptable to customers. • Relatively standardized products • Features acceptable to many customers • Lowest competitive price


Cost Leadership Strategy
Cost saving actions required by this strategy: building efficient scale facilities tightly controlling production costs and overhead minimizing costs of sales, R&D and service building efficient manufacturing facilities monitoring costs of activities provided by outsiders simplifying production processes 15

Business Strategy - BUSN 162


How to Obtain a Cost Advantage

Determine and control

Reconfigure, if needed

Cost Drivers • Alter production process • Change in automation • New distribution channel • New advertising media • Direct sales in place of indirect sales

Value Chain • New raw material • Forward integration • Backward...
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