Business-Level Strategy
Chapter Five
© 2006 by Nelson, a division of Thomson Canada Limited.
5-1
Key Issues of Business-level
Strategy
• What good or service to offer customers.
• How to manufacture or create the good or
service.
• How to distribute the good or service in the
marketplace.
© 2006 by Nelson, a division of Thomson Canada Limited.
5-2
The Central Role of Customers
In selecting a business-level strategy, the firm
determines
1. Who it will serve.
2. What needs those target customers have
that it will satisfy.
3. How those needs will be satisfied.
© 2006 by Nelson, a division of Thomson Canada Limited.
5-3
Generic Business Level Strategies
Source of Competitive Advantage
Breadth of
Competitive
Scope
Cost
Uniqueness
Broad
Target
Market
Cost
Leadership
Differentiation
Narrow
Target
Market
Focused
Cost
Leadership
Focused
Differentiation
© 2006 by Nelson, a division of Thomson Canada Limited.
5-4
How to Obtain a Cost Advantage
1
Determine and Control Cost Drivers
2
Reconfigure the Value Chain as needed
Alter production process
Change in automation
New raw material
New advertising media
New distribution channel
Direct sales in place
of indirect sales
Forward integration
Backward integration
Alter location relative
to suppliers or buyers
© 2006 by Nelson, a division of Thomson Canada Limited.
5-5
Major Risks of Cost Leadership
Business Level Strategy
Dramatic technological change could take
away your cost advantage.
Competitors may learn how to imitate
Value Chain.
Focus on efficiency could cause Cost
Leader to overlook changes in customer
preferences.
© 2006 by Nelson, a division of Thomson Canada Limited.
5-6
Differentiation strategy
“An integrated set of actions designed by a
firm to produce or deliver goods or
services that customers perceive as being
different in ways that are important to
them.”
© 2006 by Nelson, a division of Thomson Canada Limited.
5-7
Major Risks of a Differentiation
Business Level Strategy
Customers may decide that the
differentiation between the
differentiator’s product and the cost
leaders price is too large.
A firm’s means of differentiation may
cease to provide value for which
customers are willing to pay.
The means of uniqueness may no longer
be valued by customers.
© 2006 by Nelson, a division of Thomson Canada Limited.
5-8
Focus Strategies
Focus strategies are an integrated set of
actions designed to produce or deliver
goods or services that serve the needs of
a particular competitive segment.
© 2006 by Nelson, a division of Thomson Canada Limited.
5-9
Focused Business Level Strategies
Focused
Business Level
Strategies involve
the same basic
approach as Broad
Market Strategies.
However...
Opportunities may exist because:
 Firm may lack resources to
compete industry wide.
 Large firms may overlook small
niches.
 The firm may be able to serve a
narrow market segment more
effectively than industry wide
competitors.
 Focus can allow you to direct
resources to certain value chain
activities to build competitive
advantage.
© 2006 by Nelson, a division of Thomson Canada Limited.
5-10
*
Major Risks Involved With a Focused
Differentiation Business Level Strategy
Firm may be “out focused” by competitors.
Large competitor may set its sights on your
niche market.
Preferences of niche market may change to
match those of broad market.
© 2006 by Nelson, a division of Thomson Canada Limited.
5-11
Generic Business Level Strategies
Source of Competitive Advantage
Cost
Broad
Target
Market
Breadth of
Competitive
Scope
Narrow
Target
Market
Uniqueness
Cost
DifferenLeadership
tiation
Integrated
Low Cost/
Focused
Focused
Differentiation
Cost
DifferenLeadership
tiation
© 2006 by Nelson, a division of Thomson Canada Limited.
5-12
Integrated Low Cost/Differentiation
Recognize that the Integrated Low Cost/
Differentiation business level strategy
involves a Compromise.
The risk is that the firm may become
“Stuck in the Middle” lacking a strong
commitment to or expertise with either
type of generic strategy.
© 2006 by Nelson, a division of Thomson Canada Limited.
5-13