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Business-Level Strategies

Business-Level Strategies. What are some firms that compete by having: --the lowest costs (besides WalMart )? --the best products (besides Apple)?. Michael Porter: HBS. Broad Cost Leader. Competitive advantage: THE low-cost leader and operates with margins greater than competitors

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Business-Level Strategies

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  1. Business-Level Strategies

  2. What are some firms that compete by having: --the lowest costs (besides WalMart)? --the best products (besides Apple)?

  3. Michael Porter: HBS

  4. Broad Cost Leader • Competitive advantage: THE low-cost leader and operates with margins greater than competitors • Competitive scope: Wide, All/Many segments • Integrated set of actions designed to produce or deliver goods or services with features that are acceptable to customers at the lowest cost, relative to competitors • No-frill, standardized goods • Low-cost position is a valuable defense against rivals • Profits come with high market share

  5. Cost Leader Examples

  6. Cost Leader Advantages • Cost leaders are in a position to • Absorb supplier price increases and relationship demands • Force suppliers to hold down their prices • Continuously improving levels of efficiency and cost reduction can • be difficult to replicate • serve as a significant entry barrier to potential competitors • Cost leaders hold an attractive position in terms of product substitutes, with the flexibility to lower prices to retain customers

  7. Cost Leader Risks • Source of cost advantage becomes obsolete • Focus on cost may cause the firm to overlook important customer preferences • Imitation • Not good for fragmented markets • Not good in dynamic environments

  8. Broad Differentiation • Integrated set of actions designed by a firm to produce or deliver goods or services at an acceptable cost that customers perceive as being different in ways that are important to them • Target customers perceive product value • Customized products – differentiating on as many features as possible • There are a lot of ways to differentiate.

  9. Differentiation Advantages • Large margins, fewer customers. • Buyer loyalty • Deters new entrants

  10. Differentiator Examples

  11. Differentiation 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 • Counterfeiting

  12. Focused Strategies • There are two “Focus” strategies • In general, the firms’ core competencies used to serve the need of a particular industry segment or niche to the exclusion of others. • May lack resources to compete in the broader market • May be able to more effectively serve a narrow market segment than larger industry-wide competitors • Firms may direct resources to certain value chain activities to build competitive advantage • Large firms may overlook small niches

  13. Focused Cost Leaders

  14. Focused Differentiators

  15. Focused StrategiesAdvantages and Risks • YES • Can charge high prices • Develop inimitable expertise • NO • Limited demand • Focus can disappear over time • Others can slice out an even narrower focus

  16. Best-Cost Strategies • Target • Southwest • Chipotle • Plain-Ivey Jane • Low overhead business model

  17. Best-Cost Risk:Stuck in the Middle! Aesop: The Miller and His Son

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