Business-Level
Strategy:
Creating and
Sustaining
Competitive
Advantages
chapter 5
Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education
.
Three Generic Strategies
5-2
Exhibit 5.1 Three Generic Strategies as Part of a Business-Level Strategy
Source: Adapted and reprinted with the permission of The Free Press, a division of Simon & Schuster Inc. from
Competitive Strategy: Techniques for Analyzing Industries and Competitors. Michael E Porter. Copyright © 1980,
1998 by The Free Press. All rights reserved.
Three Generic Strategies
5-3
 Overall
cost leadership is based on:
 Creating
a low-cost position relative to a
firm’s peers: see the experience curve &
competitive parity
 Managing
relationships throughout the
entire value chain to lower costs
 Differentiation
 Products
implies:
and/or services that are unique &
valued
 Emphasis on nonprice attributes for which
customers will gladly pay a premium
Three Generic Strategies
5-4
A
focus strategy requires:
 Narrow
product lines, buyer segments, or
targeted geographic markets
 Advantages obtained either through
differentiation or cost leadership
Three Generic Strategies
5-5
Exhibit 5.2 Competitive Advantage and Business Performance
Combination Strategies: Integrating
Low-Cost & Differentiation
5-6
 The
goal of a combination strategy is to
provide unique value in an efficient
manner
 Automated
& flexible manufacturing systems
allow for mass customization
 Exploitation of the profit pool concept
creates a competitive advantage
 Using information technology, firms can
integrate activities throughout the extended
value chain
Internet-Enabled Low-Cost
Leader Strategies
5-7
 The
Internet and digital technologies
lower transaction costs:
 No
in-person sales calls
 Paperless transactions
 Disintermediation
or removing
intermediaries also lowers transaction
costs
 Reduced
search costs
 No need for a permanent retail location
Internet-Enabled Differentiation
Strategies
5-8
 The
Internet and digital technologies have
created new ways of differentiating by
enabling mass customization
 Customers can judge the quality &
uniqueness of a product or service by
their ability to be involved in its planning
& design
 Lowered transaction costs allow firms to
achieve parity on cost while providing a
unique experience
Internet-Enabled Focus Strategies
5-9
 The
Internet and digital technologies have
created new ways of competing in a
narrow market segment
 Customers can access markets less
expensively, and small firms can extend
their reach
 Social media allows niche firms to solicit
input and respond quickly to customer
feedback
Internet-Enabled Combination
Strategies
5-10
 The
Internet and digital technologies have
provided all companies with greater tools
for managing costs
 With lower costs for all, the net effect is
fewer rather than more opportunities for
sustainable advantage
 The ease of comparison shopping also
erodes differentiation advantages
Industry Life Cycle Stages
5-11
Exhibit 5.7 Stages of the Industry Life Cycle
Strategies in the Introduction
Stage
5-12
 The
introduction stage is when:
 Products
are unfamiliar to consumers
 Market segments are not well-defined
 Product features are not clearly specified
 Competition tends to be limited
 Strategies:
 Develop
a product and get users to try it
 Generate exposure so the product becomes
“standard”
Strategies in the Growth Stage
5-13
 The
growth stage is:
 Characterized
by strong increases in sales
 Attractive to potential competitors
 When firms can build brand recognition
 Strategies:
 Create
branded differentiated products
 Stimulate selective demand
 Provide financial resources to support valuechain activities
Strategies in the Maturity Stage
5-14
 The
maturity stage is when:
 Aggregate
industry demand slows
 Market becomes saturated, few new adopters
 Direct competition becomes predominant
 Marginal competitors begin to exit
 Strategies:
 Create
efficient manufacturing operations
 Lower costs as customers become pricesensitive
 Adopt reverse or breakaway positioning
Strategies in the Decline Stage
5-15
 The
decline stage is when:
 Industry
sales and profits begin to fall
 Price competition increases
 Industry consolidation occurs
 Strategies:
 Maintaining
the product position
 Harvesting profits & reducing costs
 Exiting the market
 Consolidating or acquiring surviving firms
Turnaround Strategies
5-16
A
turnaround strategy involves reversing
performance decline & reinvigorating
growth toward profitability through
 Asset
& cost surgery
 Selected market & product pruning
 Piecemeal productivity improvements
 Example
= Ford Motor Company
 Example = Jamba Juice