Chapter 6 Business Level Strategy Page 221 – 253 Bowman Strategy Clock Most Important.
← Identify strategic business units (SBUs) in organizations. ← Explain bases of achieving competitive advantage in terms of ‘routes’ on the strategy clock. ← Assess the extent to which these are likely to provide sustainable competitive advantage. ← Identify strategies suited to hyper-competitive conditions ← Explain the relationship between competition and collaboration ← Employ principles of game theory in relation to competitive strategy
A strategic business unit (SBU) is a part of an organisation for which there is a distinct external market for goods or services that is different from another SBU.
Exhibit 6.1 Page 222
A 'no frills' strategy combines a low price, low perceived product/service benefits and a focus on a price-sensitive market segment. These segments might exist for a number of reasons: • The products or services are commodity-like.
• There may be price-sensitive customers, who cannot afford, or choose not, to buy better-quality goods. • The buyers have high power and/or low switching costs – so building customer loyalty is difficult – for example with petrol retailing. • Where there are a small number of providers with similar market shares. • Where the major providers are competing on a non-price basis the low price segment may be an opportunity for smaller players to avoid the major competitors.
Exhibit 6.2 Page 225
A low price strategy
• Seeks to achieve a lower price than competitors
• Maintain similar perceived product or service benefits to those offered by competitors. • SBU Has Two Choices
• The first is to try to identify and focus on a market segment that is unattractive to competitors and in this way avoid competitive pressures to erode price. • A more challenging situation is where there is competition on the basis of price. This is a common occurrence in the public sector and for commodity-like markets. A hybrid strategy seeks simultaneously to achieve differentiation and a price lower • Seeks to simultaneously achieve differentiation and low price relative to competitors • It might be argued that, if differentiation can be achieved, there should be no need to have a lower price, since it should be possible to obtain prices at least equal to competition, if not higher. However, the hybrid strategy could be advantageous in the following circumstances: • Advantageous when –if Greater volumes can be achieved - Cost reductions outside differentiated activities are available • If much greater volumes can be achieved than competitors then margins may still be better because of a low cost base. • If an organisation is clear about the activities on which differentiation can be built (i.e. potential core competences) it may then be able to reduce costs on other activities. • As an entry strategy in a market with established competitors. This is often used when developing a global strategy. Organisations search for the 'loose brick' in a competitor's portfolio of businesses – perhaps a poorly run operation in a geographical area of the world – then enter that market with a superior product and, if necessary, a lower price. The aim is to take market share, divert the attention of the competitor, and establish a foothold from which they could move further. Differentiation Broad
A differentiation strategy seeks to provide products or services that offer benefits different from those of competitors and that are widely valued by buyers. The aim is to achieve competitive advantage by offering better products or services at the same price or enhancing margins by pricing slightly higher. In public services, the equivalent is the achievement of a 'centre of excellence' status, which could attract higher funding from government (for example, universities try to show that they are better at...
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