Key Concepts of Strategic Management

Steven Tam, PhD

Business-level strategy
Please also read Ch.5 of textbook

slide 1

Definition
Business level strategy is
to use the companys distinctive
competencies
to gain competitive advantages over its
rivals
to position the business well in a
market or industry

slide 2

Definition
Three components
product differentiation - what are
to be satisfied
market segmentation - who is to be
satisfied
distinctive competency - how
needs are to be satisfied
slide 3

Generic B-level Strategies

Competitive Scope
Narrow
Broad
Cost

Focused
Uniqueness

Competitive Advantage

CostLeadership
Strategy

Strategy
Differentiation
Strategy

slide 4

Cost Leadership
Strategic choices
product differentiation:
low (input cost/pricing effectiveness)

market segmentation
low (mass market)

distinctive competence

(Value Chain)

manufacturing and materials management

slide 5

Cost Leadership
high entry barrier:
cost advantage
T2: Competitors
producing at even
lower cost

less affected by
input price

cost advantages

T1: Ignoring change in

customer tastes

less affected by
fall in price

T3: Competitors
imitating

can reduce price to

compete substitute
slide 6

T = Threat

Cost Leadership
How to become an effective cost
leader
Control the cost drivers
Revamp the value chain

slide 7

Differentiation
Strategic choices
product differentiation
high (uniqueness)

market segmentation
high (many market segments)

distinctive competence
R&D, sales and marketing
slide 8

Differentiation
High entry barrier:
brand loyalty

T2: competitor
imitate quickly

Transfer cost
to customer

T1: uniqueness
lost

brand loyalty

Substitutes need to
satisfy customer needs
and break brand loyalty

differentiated
product

T = Threat

slide 9

Differentiation
How to become a good differentiator
Lower customers costs of using the
product
Raise product performance
Enhance customers intangible
satisfaction
Satisfy customers need better than
rivals
slide 10

Focus
Strategic choices
product differentiation
low to high (cost/price or uniqueness)

market segmentation
specific (one or a few segments)

distinctive competence
any kind of distinctive competence to
serve a market niche
slide 11

Focus
High entry barrier:
brand loyalty

T1: small volume

purchase

No suppliers?

T2: cost
leader

T4: niche may

disappear

offering either
unique or cheap
products

satisfy
unique
customer needs

T3:
differentiator

Substitutes need to
satisfy customer needs
and break brand loyalty
slide 12

T = Threat

Focus
How to become a successful focuser
Keep identifying your market niche(s)
Develop competence(s) within a narrow
industry segment

slide 13

Stuck in the Middle

is usually bad
companies having the wrong mix of
product/market/competence choices
would be unable to obtain a
competitive advantage

slide 14

Stuck in the middle

but sometimes it can be good
e.g., pursuing differentiation strategy
at a low cost
Use of technologies (in manufacturing
process, office automation)
Offering packages of options

slide 15

Stuck in the middle

Cost Leadership and Differentiation

Cost
Leadership
Benefits

Differentiation
Benefits

slide 16

Stuck in the middle

Cost Leadership and Differentiation
Technologies;
Marketing Initiatives

Cost
Leadership
Benefits

Combined
Benefits

Differentiation
Benefits

slide 17

First mover advantage ?

First mover
advantage

First mover
disadvantage

Firm image
Cost advantage
Customer
loyalty

Instead,
Developing Competitive Advantages !

slide 18

Costly
leadership
Primitive
product
Rapid
technology
change