Chapter 5: Business-Level Strategy  Too much differentiation

 Too high a price premium

Generic Strategies (F-O-D)  Differentiation that is easily imitated
- Presented by Michael Porter  Dilution of brand identification through
- Basic type of business level strategies based product-line extensions
on breadth of target market and type of  Perceptions of differentiation that vary
competitive advantage between buyers and sellers
a. Focus Strategy Combination Strategies: Overall Low Cost and
- Based on the choice of narrow competitive Differentiation
scope within an industry - Firm’s integrations of various strategies to
1. Cost Focus- firm strives to create a cost provide multiple types of value to customers
advantage; difference in cost behavior - GOAL: provide unique value to customers in
2. Differentiation Focus- seeks to an efficient manner
differentiate in its target market; special
needs of buyer in other segments FOUR APPROACHES
- Potential Pitfalls 1. Adopting Automated and Flexible
 Cost advantages may erode within Manufacturing Systems
the narrow segment Mass Communication- firm’s ability to
 Product and service offerings that are manufacture unique products in small
highly focused are subject to quantities at low cost
competition from new entrants and 2. Using Data analytics
from imitation Big Bang- collecting and analyzing data
 Focusers can become too focused to on their customers
satisfy buyer needs 3. Exploiting the profit pool concept
Profit pool- total profits in an industry at
b. Overall Cost Leadership all points along the industry’s value chain
- Appeal to the industrywide market using a 4. Coordinating the extended value chain
competitive advantage based on low cost
- Experience Curve: factor that is central to an - Potential Pitfalls
overall cost leadership strategy  Failing to attain both strategies and
: decline in the unit costs of possibly ending up neither, leaving
production as cumulative output the firm “stuck in the middle”
increases  Underestimating challenges and
: developed by Boston expenses associate with coordinating
Consulting Group value-creating activities in the
- To generate above-average performance a extended value chain
firm must attain  Miscalculating sources of revenue
competitive parity and profit pools in the firm’s industry
 A firm’s achievement of
similarity, or “on par”, with INDUSTRY LIFE-CYCLE STAGES: Strategic
competitors with respect to Implications
the generic strategies - Refers to the stages of introduction, growth,
- Potential Pitfalls maturity, and decline that occur over the life
 Too much focus on one or few value on an industry
chain activities
 Increase in the cost of the inputs on INTRODUCTION STAGE
which the advantage is based - First stage of the life cycle
 Strategy that can be imitated too - Characteristics:
easily  Products are unfamiliar to the
 Lack of parity on differentiation customer
 Reduced Flexibility  Poorly defined market segments
 Obsolescence of the basis of cost  Unspecified product features
advantage  Low sales growth
 Rapid technological change
c. Differentiation Strategy  Operating losses
- Based on creating differences in the firm’s  Need for financial support
product or service offering by creating - Challenges:
something that is perceived industrywide as  Developing the product and finding a
unique and valued by customers way to get users to try it
- Potential Pitfalls
 Generating enough exposure
 Uniqueness that is not valuable
 - Reversing performance decline and
GROWTH STAGE reinvigorating growth toward profitability
- Second stage of the life cycle - May occur at any stage in the life cycle but is
- Characteristics: most likely to occur during maturity or decline
 Strong increases in sales
 Growing competition THREE STRATEGIES
 Developing brand recognition a. Asset and Cost Surgery
 Need for financing complementary b. Selective product and market pruning
value-chain activities c. Piecemeal productivity improvements

MATURITY STAGE
- Third stage in the life cycle
- Characteristics:
 Slowing demand growth
 Saturated markets
 Direct competition
 Price competition
 Strategic emphasis on efficient
operations
- Two positioning strategies to affect customer
mental shifts are
 Reverse Positioning- break in the
industry tendency to continuously
augment products by offering
products with fewer product attributes
and lower prices
 Breakaway Positioning- break in the
industry tendency to incrementally
improve products along specific
dimensions by offering products that
are still in the industry but are
perceived by customers as being
different

DECLINE STAGE
- Fourth stage in the life cycle
- Characteristics:
 Falling sales and profits
 Increasing price competition
 Industry consolidation
- Firm’s strategic options become dependent on
the actions of rivals

FOUR BASIC STRATEGIES

a. Maintaining: keeping a product going
without significantly reducing marketing
support, technological development and
other investments, in hopes that rivals will
soon exit the market
b. Harvesting: obtaining as much profit as
possible in the short to medium term and
requires that costs be reduced quickly
c. Exiting the Market: dropping the product
from a firm’s portfolio
d. Consolidation: firm’s acquiring or merging
with other firms in an industry in order to
enhance market power and gain valuable
assets

TURNAROUND STRATEGIES