Business-Level Strategy

Question 1

the essence of strategy is _________ (M Porter)

Answer 1

choosing to perform activities differently than rivals do

Question 2

What are the five generic business-level strategies?

Answer 2

1. Cost leadership (lowest cost, broad market)
2. Focused cost leadership (lowest cost, narrow market segment)
3. Differentiation (distinctiveness, broad market)
4. Focused differentiation (distinctiveness, narrow market segments)
5. Integrated Cost Leadership/Differentiation (middle of everything)

Question 3

Risks of the differentiation strategy

Answer 3

▪ Customers determine that the cost of differentiation is too great (Starbucks losing sales to McDonald’s during the economic recession.)
▪ The means of differentiation may not provide value for which customers are willing to pay (DomiNick’s, a struggling predecessor of Domino’s pizza)
▪ Experience can narrow customers’ perceptions of the value of a product’s differentiated features (Hotels vs. Airbnb)
▪ Counterfeiting (“fake” purses, watches etc.)
▪ Most sensitive to economic downturns (during recession, customers tend to switch from “green”, chemical-free household products to less expensive conventional, not eco-friendly options)

Question 4

Risk of the cost leadership strategy

Answer 4

▪ Must sell in large volumes to realize the intended bottom line (Tim Hortons).
▪ Source of cost advantage can become obsolete, as the external environment changes (Can we see this happening with IKEA?).
▪ Focus on cost may cause the firm to overlook important customer preferences, i.e. “cut corners” (lack of service at Wal-Mart, Dollarama).
▪ Imitation (Most computer manufacturers can now sell DTC - direct to consumer – online and allow customized building of computers, which
was pioneered by Dell in 1990s.)

Question 5

Risk of the integrated strategy

Answer 5

▪ “Stuck in the middle”:
▪ excelling neither in cost reduction nor in differentiation
▪ cost structure is not efficient enough for attractive pricing of products; at the same time products not sufficiently differentiated to create distinct
value for target customers
▪ result: the firm does not earn above-average returns

**nonetheless, companies like Target, Zara, Singapore Airlines proved to be successful in the integrated strategy