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Chapter 5
5
Business-Level Strategy
Key Issues
in What needs will
Business-level be satisfied?
Strategy
• Market segmentation
– A process used to cluster people with similar needs
into individual and identifiable groups.
All Customers
Consumer Industrial
Markets Markets
Market Segmentation
• Consumer Markets • Industrial Markets
– Demographic factors – End-use segments
– Socioeconomic factors – Product segments
– Geographic factors – Geographic segments
– Psychological factors – Common buying factor
segments
– Consumption patterns
– Customer size
– Perceptual factors
segments
What: Determining Which Customer
Needs to Satisfy
• Customer needs are related to a product’s
benefits and features.
• Customer needs are neither right nor
wrong, good nor bad.
• Customer needs represent desires in
terms of features and performance
capabilities.
How: Determining Core Competencies
Necessary to Satisfy Customer Needs
• Firms use core competencies to
implement value creating strategies that
satisfy customers’ needs.
• Only firms with capacity to continuously
improve, innovate and upgrade their
competencies can expect to meet and/or
exceed customer expectations across
time.
Generic Business Level Strategies
Source of Competitive Advantage
Cost Uniqueness
Key Criteria:
M
Support
M Service
Operations
Outbound
Marketing
Logistics
Inbound
& Sales
Logistics
IN
G
R
A
Primary Activities
Value Creating Activities Common to a
Cost Leadership Business Level Strategy
Relatively Few
Cost Effective
MIS Systems Firm Infrastructure Management Layers to
Reduce Overhead
Activities
M
Support
Human ResourceEffective
Management
Consistent Policies to
Training Programs
to Improve Worker
Reduce Turnover Costs A
Efficiency and Effectiveness
RG
Technological Development
Easy-to-Use Manufacturing
Technologies
Investments in Technology in order
to Reduce Costs Associated with IN
Manufacturing Processes
Procurement
Systems and Procedures to find the
Frequent Evaluation Processes to
Lowest Cost Products to Purchase
Monitor Suppliers’ Performances
Raw Materials
M Service
Highly Efficient Delivery Schedule Effective Product
Operations
Outbound
Marketing
Systems to Link that Reduces Installations to
Logistics
Inbound
& Sales
Suppliers’ Logistics
Costs Reduce Frequency
IN
Products with the Timing of Asset Small, Highly and Severity
Firm’s Production Purchases
G
Selection of Low Trained Sales of Recalls
Processes
R
Cost Transport Force
A
Carriers
Primary Activities
Effective Cost Leaders can remain
profitable even when the
Five Forces appear unattractive
Effective Cost Leaders can remain profitable even when
the Five Forces appear unattractive
Threat of
New
Entrants
Cost Uniqueness
Broad Cost
Target
Market Leadership
Breadth of
Competitive
Scope
Narrow
Target
Market
Generic Business Level Strategies
Source of Competitive Advantage
Cost Uniqueness
Prestige or exclusivity
Rapid innovation
Differentiation Business Level Strategy
Requirements:
Constant effort to differentiate products through:
Developing new systems and processes
Quality focus
Capability in R&D
M
Support
M Service
Operations
Outbound
Marketing
Logistics
Inbound
& Sales
Logistics
IN
G
R
A
Primary Activities
Value Creating Activities Common to a
Differentiation Business Level Strategy
Highly Developed Information A companywide
Firm Infrastructure
Systems to better understand
customers’ purchasing preferences
emphasis on producing
high quality products
Activities
M Service
handling of manufacturing of responsive order ation among stocking of
Operations
Marketing
incoming raw attractive processing
Logistics
Inbound
Marketing and
Logistics
& Sales
materials to products procedures
IN
minimize Product
damage and Development
G
improve the
R
Rapid responses Extensive
quality of the Rapid and timely personal
A
to customers
final product unique product deliveries relationships
manufacturing to customers with buyers
specifications
Premium
Pricing
Primary Activities
Effective Differentiators can remain
profitable even when the
Five Forces appear unattractive
Effective Differentiators can remain profitable
even when the Five Forces appear unattractive
Threat of
New
Entrants
because
* Brand buyers
loyalty tends to
reduce new product trial and
are brand loyal
Can mitigate Buyer Power
brand switching
Threat of because well differentiated
products reduce customer
Substitute sensitivity to price increases
Products
Effective Differentiators can remain profitable
even when the Five Forces appear unattractive
Cost Uniqueness
Cost Uniqueness
Cost Uniqueness