H4:: business-level strategy Flashcards
business-level strategy
= how companies can successfully compete in 1 particular market that they are active in
= how to achieve a competitive advantage in a particular market
–> to have competitive adv organisations need to create greater economic value than competition
–> “greater economic value”= measure this with: 1) willingness to pay, 2) firms cost
firms cost= the more it costs you to offer a product/service, the lower the economic value
How to create value
Competitive advantage is based on:
- preceived value a firm is able to create for customers (V), captured by how much customers are willing to pay for a product or service
- the total cost (C) the firm needs to create that value
–> the greater the EVC (economic value created), the greater the firm’s competitive advantage
PORTER GENERIC BUSINESS STRATEGIES
korte uitleg
strategy= about determining a strategic positioning
companies with better strategy have more economic value
Has 2 strategies:
(1) differentiation strategy (increase V)
(2) cost leadership strategy (reduce C)
PORTER GENERIC BUSINESS STRATEGIES
differation strategy
company creates higher value for customers than the competitors create –> by offering products with unique features, while keeping cost similar
PORTER GENERIC BUSINESS STRATEGIES
cost leadership strategy
Seek to create the same value –> keep V constant
and you try to reduce C
= offering the same kind of product/service at a lower cost than competitors
–> make it as cheaply as possible, C goes down
DIFFERENTIATION STRATEGY
goal
achieve comp adv by increasing economic value through adding unique features –> increase precieved value –> so that customers WTP goed up
–> !! not about adding random features: features that are significant to the customer
DIFFERENTIATION STRATEGY
different forms
- prestige or brand image
- technology
- features
- customer service
DIFFERENTIATION STRATEGY
risks of differentiation
- uniqueness that is not valuable- expensive juice machine
- too much differentiation
- too high a price premium- no market for this product
- differentiation that is easily imitated- competitors can easily copy
- dilution of brand identification through product-line extensions- Harley davidson has macho culture, but parfume is seen as feminine
COST LEADERSHIP
goal
reduce firms cost below competitors while offering adequate/same value
- becoming lowest-cost organization while offering acceptable quality –> quality has to be maintained, has to stay similar
Example: Ryanair
- lowest cost airline
- outpreforms competitors by offering basic service
- but charging a steep premium for complementary services like upgrades
- high bargaining power, because they have so many customers
COST LEADERSHIP
4 key drivers that can help deliver cost leadership
2 eerste: inputs costs en economies of scale
1) inputs costs= locating labor-intensive operations in countries with low labor costs, locating close to raw materials sources
2) economies of scale
= if u produce greater volume, you can spread costs –> in order to lower costs, these companies have to serve a lot of customers in order to be profitable
COST LEADERSHIP
4 key drivers that can help deliver cost leadership
2 andere: experience en product/process design
3) EXPIERNCE=
- the cumulative experience organization with each unit of output leads to reductions in unit costs
- as cumulative output increases, managers learn how to optimize the process and workers improve their preformance through repetition
4) PROCESS INNOVATION/DESIGN
= company learns how to use different method to produce –> they invent cheaper way of making something
“process innovation”= new method or technology to produce an existing product
WHY DO NOT BOTH: DIFFERENTIATION AND COST LEADERSHIP
TRADE-OFF:
FOR COST LEADER:
- adding extra costs by half assed efforts of differentiation may relust in lower cost competitors capturing the market
- have to focus on lowering price, not on differentiation
- customers will choose lowest price
FOR DIFFERENTIATOR
- might harm competitive differentiation
- self-defeating to make econolies that jeapardize the basis for differentiation
WHY DO NOT BOTH: DIFFERENTIATION AND COST LEADERSHIP
When is it possible?
In the presence of:
- quality- toyota’s totale quality management
- economies of scope-starbucks differentiated offering
- customization- nike id
- innovation- IKEA
- structure, culture, routines
RED AND BLUE OCEANS
- only way to beat competition is to stop trying to beat the competition
- instead of focusing on beating the competition –> opening up new and uncontested market space
RED AND BLUE OCEANS
blue ocean
instead of competing for same customers and market –> companies should in stead ignore the competition
–> OPENING UP NEW UNCONTESTED MARKET SPACE
create a blue ocean –> not competing for sophisticated market
