CHAPTER 5
STATEGY AND COMPETITIVE
ADVANTAGE
Business Level Strategy
• What are the five Generic Business Level
Strategies?
• Are the generic business level strategies only
useful in certain industries?
• According to the generic strategies model, what
are the two factors that determine the source of
competitive advantage?
• According to the generic strategies model, what
does it mean to have a Focused generic strategy?
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Figure 5.1: The Five Generic
Competitive Strategies
Type of Advantage Sought
Market Target
Lower Cost
Broad
Range of
Buyers
Narrow
Buyer
Segment
or Niche
Differentiation
Overall Low-Cost
Broad
Provider
Differentiation
Strategy
Strategy
Best-Cost
Provider
Strategy
Focused
Focused
Low-Cost
Differentiation
Strategy
Strategy
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Cost Leadership Strategy
• Under a cost leadership strategy are the
products offered standardized or customized?
• The features of products offered
by firms using a cost leadership
strategy are essential.
True
False
• Firms using a cost leadership strategy believe
that their competitive advantage is that they offer
customers products with the ______ _______.
• Are there risks associated with a cost leadership
strategy?
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Cost Leadership Strategy
Firms pursuing a cost leadership strategy:
• Do not need scale facilities.
• Should simplify processes
• Primarily focus on the value
True
False
True
False
True
False
chain activities of Sales, R&D,
and Service.
• What are some things a that Nucor (pg. 154) did to
lower costs in its value chain?
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Three Key Questions
• How can an activity be performed differently or
even eliminated?
• How can a group of linked value activities be
regrouped or reordered?
• How might coalitions with other firms lower or
eliminate costs?
• What might you do to make Giuseppe more
cost competitive? Daimler?
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Benefits of Successful Differentiation
A product / service with unique and
appealing attributes allows a firm to



Command a premium price and/or
Increase unit sales and/or
Build brand loyalty
= Competitive Advantage
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Differentiation Business Level
Strategy
• A differentiation strategy requires
True
False
True
False
that product offerings have unique
features.
• The product offerings of firms
pursuing a differentiation strategy are
typically higher price.
• What companies in the cases we read so far followed
a differentiation strategy? What attributes made
the products differentiated?
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Differentiation Business Level
Strategy
• Firms pursuing a differentiation
True
False
True
False
strategy need to be concerned
about innovation.
• Firms pursuing a differentiation
strategy do not need to be
concerned about customer service.
• A broad product line is
True
False
considered to be one of the
possible characteristics of a
differentiation strategy.
• Are there some risks of a differentiation strategy?
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Industry Conditions and Low Cost or
Differentiation Strategy
• Which strategy is best in an industry or segment
with price sensitive consumers?
• Which strategy is preferred when the industry has
many different buyer segments?
• Which strategy is best when the industry has
buyers that use the product in the same ways?
• When an industry has high brand loyalty then
which strategy is preferred?
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Focused Business Level Strategy
•
What is a niche?
•
A niche strategy has to focus on
being low cost and differentiated.
• Firms chose a focused strategy
True
False
True
False
True
False
because narrow segments are
being poorly served.
• Industry-wide competitors usually
can serve the special needs of
narrow segments.
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Focused Business Level Strategy
•Firms using a focused strategy are
True False
not at risk of being out-focused.
• Large competitors are not concerned
True False
with the niche market.
• Niche market preferences do not
True False
change.
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Generic Business Level Strategies
Source of Competitive Advantage
Cost
Breadth of
Competitive
Scope
Broad
Target
Market
Uniqueness
Best
Cost
Provider
Narrow
Target
Market
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Best Cost Provider
• What does a firm try to accomplish with a best-cost
strategy?
• How does a best cost strategy and a low-cost
strategy differ?
• When does a best-cost strategy out-compete both
a low-cost provider and a differentiator?
• What are the risks of a best-cost strategy?
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Cooperative Strategies
• What are some forms of cooperative agreements?
• Why do firms have cooperative agreements?
• What are some reasons that alliances fail?
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Vertical Integration and Outsourcing
• What is the benefit of backward integration to a
firm?
• What does industry backward integration mean for
potential new entrants?
• What are the benefits for forward integration for a
firm?
• What are some of the disadvantages of vertical
integration?
• What is outsourcing?
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Outsourcing
• What is outsourcing?
• Why do firms decide to outsource?
• What are the disadvantages of outsourcing?
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