Chapter 4 MGT 480 Business-Level Strategy PDF

Preview

Summary

Chapter 4: Business-Level StrategyReach, Richness, and Affiliation Reach - Revolves around the firm’s access and connection to customers - An especially critical dimension for social networking sites Richness - Concerns the depth and detail of the two-way flow of information between the firm and cus...

Description

Chapter 4: Business-Level Strategy Reach, Richness, and Affiliation Reach - Revolves around the firm’s access and connection to customers - An especially critical dimension for social networking sites Richness - Concerns the depth and detail of the two-way flow of information between the firm and customers Affiliation - Concerned with facilitating useful interactions with customers 1. Who: Determining the Customers to Serve - Market Segmentation: The process of dividing customers into groups based on their needs - Table 4.1 Basis for Customer Segmentation (consumer markets and industrial markets) 2. What: Determining Which Customers Needs to Satisfy 3. How: Determining Core Competencies Necessary to Satisfy Customer Needs The Purpose of a Business-Level Strategy - To create differences between the firm’s position and those of its competitors Business Model: describes what a firm does to create, deliver, and capture value for its stakeholders - Freemium model - An advertising model - A peer to peer model Types of Business-Level Strategies - When selecting business level strategy, firms evaluate 2 types of potential competitive advantages: lower cost than rivals or the ability to differentiate and command a premium price that exceeds the extra cost of doing so - Two types of target markets are broad market and narrow market segments 1. Cost leadership → an integrated set of actions taken to produce products with features that are acceptable to customers at the lowest cost, relative to that of competitors

-

Examples of value creating activities associated with the cost leadership strategy above - Rivalry with existing competitors - Bargaining power of buyers (customers) - Bargaining power of suppliers - Potential entrants - Product substitutes Competitive risks of the cost leadership - The processes used by the cost leader to produce and distribute its products could become obsolete because of competitors’ innovations - Too much focus by the cost leader on cost reduction may occur at the expense of trying to understand the customers’ perceptions of competitive levels of differentiation - Imitation is also a risk 2. Differentiation → an integrated set of actions taken to produce products (at an acceptable cost) that customers perceive as being different in ways that are important to them

-

Examples of value creating activities associated with differentiation strategy - Rivalry with existing competitors - Bargaining power of buyers (customers) - Bargaining power of suppliers - Potential entrants - Products substitutes Competitive risks of the differentiation strategy - Customers may decide that the price differential between the differentiator’s product and the cost leader's product is too large - A firm’s means of differentiation may cease to provide value for which customers are willing to pay or that how the firm seeks to differentiate its offerings is unclear to target customers - Experience can narrow customers’ perceptions of the value of a products’ differentiated features - Counterfeiting is the fourth risk - Failing to provide crisp and identifiable differentiation to customers in the form of a firm’s products is a fifth risk 3. Focused cost leadership - Focused strategy: an integrated set of actions taken to produce products that serve the needs of a particular segment of customers 4. Focused differentiation Competitive Risks of Focus Strategies - A competitor may be able to focus on a more narrowly defined competitive segment and thereby “out-focus” the focuser - A company competing on an industry wide basis may decide that the market segment served by the firm using a focus strategy is attractive and worthy of competitive pursuit - That needs to customers within a narrow competitive segment may become more similar to those of industry wide customers as a whole over time 5. Integrated cost leadership/differentiation → finds a firm engaging simultaneously in primary value chain activities and support functions to achieve a low cost position with some product differentiation - Flexible manufacturing systems - Information networks - Total Quality Management Systems (TQM): Involves the implementation of appropriate tools/techniques to provide products and services to customers with the best quality → firms develop these systems to increase customer satisfaction, cut costs, and reduce the amount of time required to introduce innovative products to the marketplace Competitive Risks of this strategy - Firms failing to perform the value chain activities and support functions in an optimum manner when implementing the integrated cost leadership/differentiation strategy become stuck in the middle...