Business Level Strategy

Question 1

What is business-level strategy?

Answer 1

How to position yourself in each product market/business we operate - tactics to beat competition.

1. Who will be served by the firm: customer segments - similar needs and behaviors
2. What needs do those target customers have that the firm will satisfy
3. How will those needs be satisfied by the firm: in a way that not only differentiates us from the competition but also creates value for us. Determining core competencies necessary to satisfy customer needs, not only beating competition but sustaining our position in doing so.

Question 2

5 generic business-level strategies. These are based on two dimensions:

Answer 2

1. Firm must choose between: a. Performing activities differently (cost) or performing different activities (differentiation)
2. Firm must target a broad or a narrow scope

Question 3

Cost Leadership Strategy
-Ways to lower cost
-Risks

Answer 3

Produce or deliver goods or services with features that are acceptable to customers at the lowest cost and highest margins relative to competitors.

Ways to lower costs
* Economies of scale & Cost of input factors
* Learning-curve effects & Experience-curve effects

Risks
* Source of cost advantage becomes obsolete
* Focus on cost may cause the firm to overlook important customer preferences
* Imitation

Question 4

Broad Differentiation strategy
-Ways to increase value
-Risks

Answer 4

Produce or deliver goods or services at an acceptable cost that target customers perceive the product´s value.

Ways to increase value through differentiation:
* Product features
* Customer service
* Complements/bundles

Risks
* Customers determine that the cost of differentiation is too great.
* The means of differentiation may cease to provide value for which customers are willing to pay.
* Experience can narrow customers’ perceptions of the value of a product’s differentiated features.

Question 5

Focused Cost Leadership
Focused Differentiation

Answer 5

It could be a good strategy to focus on a particular segment or niche since
* May lack resources to compete in the broader market
* May be able to serve more effectively a narrow market segment than a larger one
* Large firms may overlook small niches/specific needs

Risks:
* A competitor may be able to focus on a more narrowly defined competitive segment and “out focus” the focuser.
* A company competing on an industry-wide basis may decide that the market segment served by the focus strategy firm is attractive and worthy of competitive pursuit.
* Customer needs within a narrow competitive segment may become more similar to those of industry-wide customers as a whole

Question 6

Integrated cost-leadership/differentiation strategy

Answer 6

Efficiently produce goods/services with differentiatied attributes. Firms must be competent in many primary and support activities.
* Efficiency: sources of low cost
* Differentiation: sources of unique value

Risks
-The cost structure is not low enough for attractive pricing of products and products not sufficiently differentiated to create value for the target customer

Question 7

Interaction Between 5 forces and strategies

Question 8

Blue Ocean strategy
-Red oceans
-Blue oceans

Answer 8

Existing markets: red oceans
* Companies try to outperform rivals, get bigger slice of existing demand
* Space gets increasingly crowded -> profit and growth prospects shrink
* More intense competition “turns the water bloody”

New markets: blue oceans
* Firms develop uncontested market spaces
* Invent and capture new demand with growth -> competition is irrelevant
* Offer customers’ leap in value while lowering costs
* Created brand equity and premium -> high profits and fast growth