Three Generic Strategies
Overall cost leadership is based on:
Creating a low-cost position relative to a firm’s peers: see the experience curve & competitive parity
Managing relationships throughout the entire value chain to lower costs
Differentiation implies:
Products and/or services that are unique & valued
Emphasis on nonprice attributes for which customers will gladly pay a premium
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Business-Level Strategy: Creating and Sustaining Competitive Advantageschapter 5Three Generic Strategies5-*Exhibit 5.1 Three Generic Strategies as Part of a Business-Level StrategySource: Adapted and reprinted with the permission of The Free Press, a division of Simon & Schuster Inc. from Competitive Strategy: Techniques for Analyzing Industries and Competitors. Michael E Porter. Copyright © 1980, 1998 by The Free Press. All rights reserved.Three Generic StrategiesOverall cost leadership is based on:Creating a low-cost position relative to a firm’s peers: see the experience curve & competitive parityManaging relationships throughout the entire value chain to lower costsDifferentiation implies:Products and/or services that are unique & valuedEmphasis on nonprice attributes for which customers will gladly pay a premium5-*Three Generic StrategiesA focus strategy requires:Narrow product lines, buyer segments, or targeted geographic marketsAdvantages obtained either through differentiation or cost leadership5-*Three Generic Strategies5-*Exhibit 5.2 Competitive Advantage and Business PerformanceCombination Strategies: Integrating Low-Cost & DifferentiationThe goal of a combination strategy is to provide unique value in an efficient mannerAutomated & flexible manufacturing systems allow for mass customizationExploitation of the profit pool concept creates a competitive advantageUsing information technology, firms can integrate activities throughout the extended value chain5-*Internet-Enabled Low-Cost Leader StrategiesThe Internet and digital technologies lower transaction costs:No in-person sales callsPaperless transactionsDisintermediation or removing intermediaries also lowers transaction costsReduced search costsNo need for a permanent retail location5-*Internet-Enabled Differentiation StrategiesThe Internet and digital technologies have created new ways of differentiating by enabling mass customizationCustomers can judge the quality & uniqueness of a product or service by their ability to be involved in its planning & designLowered transaction costs allow firms to achieve parity on cost while providing a unique experience5-*Internet-Enabled Focus StrategiesThe Internet and digital technologies have created new ways of competing in a narrow market segmentCustomers can access markets less expensively, and small firms can extend their reachSocial media allows niche firms to solicit input and respond quickly to customer feedback5-*Internet-Enabled Combination StrategiesThe Internet and digital technologies have provided all companies with greater tools for managing costsWith lower costs for all, the net effect is fewer rather than more opportunities for sustainable advantageThe ease of comparison shopping also erodes differentiation advantages5-*Industry Life Cycle Stages5-*Exhibit 5.7 Stages of the Industry Life Cycle Strategies in the Introduction StageThe introduction stage is when:Products are unfamiliar to consumersMarket segments are not well-definedProduct features are not clearly specifiedCompetition tends to be limitedStrategies:Develop a product and get users to try itGenerate exposure so the product becomes “standard”5-*Strategies in the Growth StageThe growth stage is:Characterized by strong increases in salesAttractive to potential competitorsWhen firms can build brand recognitionStrategies:Create branded differentiated productsStimulate selective demandProvide financial resources to support value-chain activities5-*Strategies in the Maturity StageThe maturity stage is when:Aggregate industry demand slowsMarket becomes saturated, few new adoptersDirect competition becomes predominantMarginal competitors begin to exitStrategies:Create efficient manufacturing operationsLower costs as customers become price-sensitiveAdopt reverse or breakaway positioning5-*Strategies in the Decline StageThe decline stage is when:Industry sales and profits begin to fallPrice competition increasesIndustry consolidation occursStrategies:Maintaining the product positionHarvesting profits & reducing costsExiting the marketConsolidating or acquiring surviving firms5-*Turnaround StrategiesA turnaround strategy involves reversing performance decline & reinvigorating growth toward profitability throughAsset & cost surgerySelected market & product pruningPiecemeal productivity improvementsExample = Ford Motor CompanyExample = Jamba Juice5-*