The Strategic Management Process










 






 



 


 








 



 


 
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 Business-Level Strategies

Two Generic Business Level Strategies:

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 generate economic value by having lower costs than competitors

Example: Asda ƛ online grocery store UK

  



 generate economic value by offering a product that customers
prefer over competitorsƞ product

Example: Waitrose ƛ online grocery store


 Differentiation ƛ A Definition

Definition:
Product (or Service) differentiation is a business
level strategy intended to:

 increase the perceived value of firmƞs products (or

services) compared to competitorƞs products (or
services)

 create a customer preference for firmƞs

products / services

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 Bases of Differentiation

› base of differentiation must fill some

customer need:

ƥ image ƥ beauty ƥ safety ƥ furthering a cause

ƥ hunger ƥ status ƥ quality ƥ reliability in use
ƥ comfort ƥ style ƥ service ƥ nostalgia
ƥ cleanliness ƥ taste ƥ accuracy ƥ belonging

› differentiated product fills one or more needs

better than the products of competitors
Œ
 Bases of Differentiation

›lmost anything can be a base of differentiation

ƥ the wide range of customer needs can be filled
by a wide range of bases of differentiation

ƥ 
  
(product features, location, etc.)
ƥ

  (reputation, a cause, an ideal, etc.)
ƥ limited only by managerial creativity

Example: Mercedes vs. BMW

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 Three Bases of Differentiation

 diff. kinds of Bases of Differentiation (BoD):

1)
  


ƥ exploiting the actual product

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ƥ exploiting relationships with customers

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ƥ exploiting relationships within the firm

and/or relationships with other firms


 BoD 1: Product ›ttributes

ƥ
  
ë e.g. the shape of the product

ƥ
  Ô 
ë e.g. multiple functions on mobile phone

ƥ 

   
ë being the first to market, e.g. Sonyƞs
Walkman

ƥ  
ë e.g. restaurant located next to a motorway exit

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 BoD m: Firm-Customer Relationships

 Ô
 

ë creating a unique product for a customer
e.g. custom-tailored suit, custom-made bike (Bianchi)

 Ô 

ë creating brand loyalty
e.g. strong advertising (Coke, Nike)

 
ë creating reputation for brand
e.g. sponsoring events (Red Bull ›ir Race)

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 BoD : Firm-Linkages (1)

 

  


   to exploit certain
resources
e.g. skills, for example Ɲengineered by Lotusƞ Protons

 


    

 to exploit certain resources
e.g. reputation, for example Porsche Design products


  
 offering extended product mix to attract customers
e.g. a coffee shop selling food

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 BoD : Firm-Linkages (m)
 



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selling own products / services via new distribution channels
e.g. groceries at service stations, music CDs and newspapers at coffee
shops

 a!
a 
offering better services and customer support to supplement the sold
product
e.g. IBM servers

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 Competitive ›dvantage

  




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Is it "aluable?

Is it are?

Is it costly to mitate?

Is the firm #rganized to exploit it?

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à ": Does differentiation result in an increase in revenues?
à customers willing to pay premium?
à higher sales of product?

à 
: By definition, we can assume rareness (if product /
service is truly differentiated, then it is, by definition, rare ë but
do consumers value it?)

à 


: How easy/costly would it be for competitors to
imitate the differentiating factor?

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 Imitability of Differentiation

Logic of costs of imitation

ƥ if would-be imitators face a cost disadvantage of imitation, they will
rationally choose not to imitate

Substitutes
ƥ if a base of differentiation is valuable, others will attempt to imitate
it through duplication and/or substitution

ƥ if no substitutes are obvious, then we would conclude that imitation

through substitution will be costly ë at least for the present time

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Exploiting Industry-type Opportunities

Fragmented Industry

Branding: commodity 
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Example: Kelloggƞs Corn Flakes

Emerging Industry

First mover advantages: captures market share

Example: Motorola Mobile Phones

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Exploiting Industry-type Opportunities

Mature Industry

Refining product or adding services

Example: IBMƞs emphasis on service

Declining Industry

Exploiting niches: serving those with strong

needs/preferences

Example: production of analogue films

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 Exploiting Other Opportunities

Trends or Fads Social Causes

ƥ spinners ƥ themed credit cards
ƥ surf clothing ƥ animal safe clothing

Government Policy Economic Conditions

ƥ Toyota Prius ƥ outplacement agencies
ƥ airport x-ray machines ƥ check cashing services
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 Implementing Differentiation
Internationally
Global Multi-Domestic

ƥ standardized product ƥ non-standard product

ƥ little variance in ƥ high variance in

tastes & preferences tastes & preferences
ƥ centralized control ƥ decentralized control
ƥ focused on efficiency ƥ focused on satisfying
tastes & preferences
Example: Sony Example: Siemens
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 Summary (1)

ƥ product differentiation creates customer preferences

ƥ preferences allow firms to make above normal profits

ƥ almost anything can be a base of differentiation

ƥ bases of product differentiation that meet the

VRIO criteria may generate competitive advantage
ƥ a product differentiation strategy is only as good
as its implementation

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 Summary (m)
Business Level Strategy

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Cost ›dvantages
Competitive ›dvantage
Depends on Meeting
VRIO Criteria
Based on:
Economies of Scale
Learning Curve Economies Emphasis on
Technology Organization
Policy Choices (Implementation)