CH6 - Selecting Business-Level Strategies

Question 1

Learning Objectives

Answer 1

1. Why is an examination of generic strategies valuable?
2. What are the 4 main generic strategies?
3. What is a best-cost strategy?
4. What does it mean to be “stuck in the middle”?

Question 2

Generic/Business level strategy

AKA?

Answer 2

or generic competitive strategy

Question 3

What are the 5 generic/business-level competitive strategies a company may pursue?

Answer 3

1. Broad cost leadership
2. Broad differentiation
3. Focused cost leadership
4. Focused differentiation
5. Best cost strategies

Question 4

From what point of view are business-level strategies viewed?

Answer 4

From the perspective of which customers/consumers are being targeted

Question 5

2 primary questions that need to be answered for any business-level strategy

Answer 5

1. Will the intent of the strategy be on a broad or focused target audience?
2. Does the firm organize around a cost OR a differentiation approach?

Question 6

Broad vs. narrow

Answer 6

Most of the people in that market vs. a niche

Question 7

Business-level Strategy 1:

Broad Cost Leadership

Answer 7

Offers the lowest price in the market for that product or service.

Appeals to price-sensitive customers

Question 8

Strategy 2: Broad differentiation

Answer 8

Offer something unique that differentiates, and thus are able to charge somewhat higher prices.

Question 9

Strat 3: Focused cost leadership

Answer 9

to a niche at a low price

Question 10

Strategy 4: Focused differentiation

Answer 10

differentiated product/service to a niche

Question 11

Strategy 5: Best Cost

Answer 11

Firm attempts a hybrid of both low cost and differentiated products/services.

A firm performing this strategy needs to execute well or risk not performing either well, and therefore become “STUCK IN THE MIDDLE” losing customers to the competition

Question 12

What are the 2 dimensions that firms compete on according to Michael Porter?

Answer 12

1. Source of competitive advantage - Cost or Differentiation
2. Scope of operations - broad or narrow

Question 13

Stuck in the middle firms

Answer 13

Firms that are not able to offer low prices or appealing unique features

Question 14

What factor is affected depending on which strategy is chosen?

Answer 14

Value chain configuration

Question 15

How do cost leaders achieve low prices and still make a profit?

Answer 15

1. Focus on efficiency. Don’t spend as much as others on advertising/market research/R&D
2. Economies of scales

Question 16

Advantages and Disadvantages of

Cost Leadership

Answer 16

Advantages:

1. Well-positioned to withstand price competition
2. High profits if cost leader has a high market share

Disadvantages:

1. If perception of quality goes down, business can suffer
2. Large volume of sales are a must because margins are so slim
3. Potential to miss key environment trends
4. The emphasis on efficiency can make it hard for them to change quickly if needed
5. Often require high investments in production/distribution capacity

Question 17

Differentiation Strategies

Advantages and Disadvantages

Answer 17

Advantages

1. Buyer loyalty - brand recognition - if they are loyal, they are less likely to be price-sensitive
2. Being able to charge high premiums

Disadvantages

1. Lots of competition that satisfy price-sensitive buyers
2. Imitations may steal customers

Question 18

One way to facilitate the best cost strategy (hybrid of low cost + differentiation)

Answer 18

Slash fixed costs

Examples: Amazon, food trucks,etc.

Question 19

Stories in chapter

Answer 19

Aesop fable: the miller, his son, and their ass

ukuleles seller, and $100/lb of coffee bag (civet droppings)