Chapter 5

2 dimensions critical to defining busn-level strategy

1. Firm's source of competitive advantage. Involves whether firm tries to gain edge on rivals by keeping costs down or by offering something unique in the market. 2. Firm's scope of operations. Whether firm tries to target customers in general or seek to attract just a segment of customers

Limitations of Generic Strategies

1not everyone follows path. Walmart spends a lot on advertising despite following cost leadership strategy. Firm may not match every characteristic its generic strategy entails. Depending on nature of firm's industry, tweaking recipe of generic strategy may be essential for success

Nature of Differntiation

A generic strategy that attempts to convince customers to pay a premium price for its good or services by providing unique and desirable features ~Its success depends on offering unique features and communicating the value of these features to potential customers -> ADVERTISING (Nike advertising)

Adv/Disadv of cost leadership

Advantages: *High profits through high market share *efficiency makes them well positioned to withstand price competition from rivals Disadvantages: *Large sales volumes are a must b/c profit margins are slim *if perception of quality becomes too low, business suffers *The constant need to keep expenses low might lead cost leaders to be late in detecting key environment changes *emphasis on efficiency makes it difficult for them to change quickly if needed

Economies of Scale

Exists when the costs of offering goods and services decreases as the firm is able to sell more items -Expenses are distributed across a greater number of items -minimize advertising, market research, and research/development.

Best-cost

Firms that charge low prices and offer substantial differentiation ~difficult to execute: creating unique features and communicating to customers why these features are useful can cost money ~Firm can adopt business model whose fixed costs and overhead are very low relative to costs that competitors are absorbing examples: Target, Southwest, Chipotle, Pabst Blue Ribbon. Highest profitability

Nature of focused cost leadership and focused differentiation

Generic business strategies that involve targeting a relatively narrow niche of potential customers 1. Focused cost: compete narrow based on price ~Examples: Whole Foods, Build-A-Bear, Mercedes-Benz, Cinnabon 2. Focused differentation: offers unique features to narrow market ~examples: Red Box, Netflix, Papa Murphy's, Checkers Drive In, Claire's. ~Note: Target market defined by demographics (Claire's appeals to young women). Sometimes defined by sales channel used to reach customer

Nature of Cost Leadership

Generic strategy that offers products or services with acceptable quality and features to a broad set of customers at a low price ~Walmart, Dunkin Donuts, Supercuts, Payless ShoeSource, Little Debbie snack cakes ~Charge low prices to make prophet, emphasize efficiency, rely on economies ofscale, demand price concessions from suppliers

Four primary generic strategy

Generic strategy: general way of positioning firm's business level strategy within an industry. Focusing this allows execs to concentrate on core elements of firms' business-level strategies 1. Low cost: Broad target, cost is competitive advantage (Walmart) 2. Differntiation: Broad target, unique competitive advantage. (Nordstrom) 3. Focused cost leadership: Narrow target, cost is competitive advantage. (Dollar Store not offering full array of consumer goods) 4. Focused differentiation: narrow target, uniqueness is competitive advantage (Anthropologie selling unique and pricey women's apparel

Stuck in the Middle

Situation where business level strategy doesn''t offer features unique enough to convince customers to buy offerings. Prices are too high or lack of clear market/competitive pricing. This happens when firms are outmaneuvered by competitors examples: Arby's, Sears, Circuit City, Kmart

Adv/disadv of Differentiation

advantage: *buyer loyalty where individuals want to be seen with designer logo *higher profit margins disadvantage: *customers may prefer less expensive alternatives. Lots of marketing costs b/c of communicating your uniqueness *imitation may steal customers, such as knock-off bags

Adv/disadv of focus strategies

advantages: *can charge high prices. *develop great expertise about good or service being sold *customers may gravitate toward specialty stores Disadvantages: *limited demand for specialized g&s exists, every potential sale couns *area of focus may be taken over by others over time such as Walmart *other firms may provide even narrower focus