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Strategic Management Chapter 5- Business Level Strategy

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1.

business level
strategy

the strategic initiatives a firm takes at the


business unit level and cuts across all
functions for that particular business unit

2.

customer
needs

WHAT is to be satisfied- desires, wants,


cravings satisfied through product
attributes (Choose based on way product is
differentiated and price)

3.

customer
groups

WHO is to be satisfied

4.

distinctive
competencies

HOW customers are to be satisfied

5.

market
segmentation

customers grouped based on differences in


needs or preferences

6.

main
approaches to
segmenting
markets

1.- ignore differences in segments (make


product for typical customer
2.- recognize differences between segments
(make products that meet needs of all/most
segmetns
3.- target specific segments (focus on one or
two selected segments)

7.

generic
business level
strategies

-cost leadership
-focused cost leadership
-differentiation
-focused differentiation

8.

cost
leadership

lowest cost structure


competitors allowing price flexibility and
higher profitability (lower costs/lower prices,
high efficiency and quality to reliability ex.
Walmart)

9.

focused cost
leadership

cost leadership in selected market niches


where it has a local or unique cost
advantage

10.

differentiation

features important to customers and distinct


from competitors that allow premium pricing
(higher costs/higher prices, high innovation
and quality as excellence ex. Nordstrom)

11.

focused
differentiation

distinctiveness in selected market niches


where it better meets the needs of
customers than the broad differentiators
(selects based on geography, type of
customer, or segment of product line)

12.

advantages of
cost
leadership

include:
-protected from competitors
-less affected by incrased prices of inputs if
there are powerful suppliers
-less affected by a fall in price of outputs if
there are powerful buyers
-purchases in large quantities increase
bargaining power over suppliers
-ability to reduce price to compete with
substitutes
-low costs and prices are barrier to entry

13.

disadvantages
of cost
leadership

include:
-competitors may lower their cost structure
-competitors may imitate cost leader's
methods
-cost reductions may affect demand

14.

advantages of
differentiation

include:
-customers develop brand loyalty
-powerful suppliers not a problem because
company geared more toward price it can
charge than costs
-can pass price increases on to loyal
customers
-powerful buyers not a problem because
product distinct
-differentiation and brand loyalty are
barriers to entry
-threat of substitute products depend on
competitor's ability to meet customer needs

15.

disadvantages
of
differentiation

include:
-difficulty maintaining long term
distinctiveness in customer's eyes (quickly
imitate/patents and first-mover advantage
are limited in duration)
-difficulty maintaining premium price

16.

advantages of
focused
differentiation

include:
-focuser protected from rivals to extent can
provide a product/service they cannot
-focuser has power over buyers because
they cannot get same thing elsewhere
-threat of new entrants limited by customer
loyalty to focuser
-customer loyalty lessens threat from
substitutes
-focuser stays close to customers and
changing needs

17.

disadvantages of focused
differentiation

include:
-focuser at disadvantage to powerful suppliers because it buys in small volume
-because of low volume, focuser may have higher costs than low cost company
-focuser's niche may disappear because of technological change or changes in customer's tastes
-differentiators will compete for focuser's niche

18.

competitive sweet spot

becoming a broad differentiator- companies that successfully differentiate their products while also
lowering their cost structure over time

19.

failures in competitive
positioning

due to companies:
-not working continuously to improve business model
-not performing strategic group analysis
-often failing to ID/respond to changing opportunities and threats in environment
-losing sight of the customer

20.

strategic groups

set of companies that pursue a similar business model and compete for the same group of customers