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Chp 4 Business Level Strategy (BLS) (A firm decides in terms of customers…
Chp 4
Business Level Strategy (BLS)
Previous chapters - Analysis of external environment and internal reosurces and capabilities - first step of Strategic Management (SM)
This is first chap of step 2 "Strategy"
Business level strategies - Set of coordinated commitments and actions a firm takes exploiting its core competencies to gain a competitive adv in
specific product markets
A firm decides in terms of customers (while formulating BLS)
Who will be served
what needs of those customers will be satisfied
how will those needs be satisfied
Customers: Their relationship with BLS
Effectively managing relationship with customers through
Reach
Access and connection to customers
specially important for companies like Fb and Netflix
Richness
related to depth and detail of the two-way flow of information between the firm and the customer
Allows firms to better understand customer needs and customers to better understand how firm can satisfy them
Affiliation
Facilitating useful interactions with customers
viewing the world through the customer's eyes and constantly seeking ways to create more value
Who, what, how
Who
almost any identifiable human or org characteristic can be used to subdivide a market into segments - to pick to serve
Common consumer characteristics
Demographic factors (age, sex..)
Socio economic (social class, stage in family life cycle...)
Geographic (culture, region)
Psychological (personality traits, lifestyle)
Consumption patterns (heavy, moderate)
Perceptual factors (benefit segmentation ie. what particular benefit appeals to the audience of the product)
what
decide "what" needs to satisfy
successful firms discover - what they consumers want, when they want it
firms to personalize their offerings of "what" based on customer data (ie. customized for groups or even individuals)
Successful firms try to predict future needs as well of customers and adapt preemptively (ie. Newer millennials will want healthier, faster dining etc)
How: Determining core competencies necessary to satisfy customer needs
Determine core competencies necessary to satisfy those needs and build them via its capabilities and resources
Often diff for competitors to imitate when quickly improving and innovating in them and when they (core competencies or capabilities) are used in an integrated way
Purpose of a Business Level Strategy
Choosing to "perform activities differently or performing different activities than rivals" - essence of business level strategy
Doing activities in an integrated fashion makes them much more difficult to imitate.
Types of Business level Strategy
Note: 5 different business lvl strategies - one note inherently better than other - rather depend on opportunities, threats, Strengths and Weaknesses
When considering which strategy, firms consider between lower cost or more differentiation than rivals (to command a premium)
the types
Cost leadership strategy
An integrated set of actions taken to produce goods or services with features that are acceptable to customers at the lowest cost, relative to that of competitors.
Innovations in in-bound (warehousing etc) and out-bound logistics (distribution etc) to reduce costs super helpful
Cost leaders examine all value creating and support function to make more efficient and reduce costs
do refer to diagram on pg 119 of book (4.2)
degree of rivalry based on size of rivals, their resources, dependence on a particular market, location and prior competitive battles.
Bargaining power of buyers - powerful buyers can force cost leader to further lower prices - but take care not to take so low that next most efficient cost leader can't even earn average returns - this would force the 2nd cost leader to go out of business - leaving the initial cost leader with more bargaining power
To reduce bargaining power of buyers - suppliers can find out more about them and make relationships so they are better able to understand and therefore deliver value to them (ie. more value, more willingness to pay and a stronger relationship)
bargaining power of suppliers - cost leader if high volume has high bargaining power - however, if out sources too much to reduce prices ends up inc supplier bargaining power - thus when outsourcing, efforts need to be made to form a relationship of trust as well
Potential entrants find it difficult to come in a market with an efficient cost leader (specially if economies of scale exist)
substitutes can usually be countered by the cost leader via further decreasing prices - thus it has more flexibility here than might other companies
risks -
i. Innovation might happen that produces at even a lower cost or inc features without increasing price - rendering Cost leader 's system obsolete
ii. Too much focus on cost might lead to getting below competitive /acceptable levels of differentiation / offerings in the eyes of the customer
2
Differentiation strategy
An integrated set of actions taken to produce goods or services (at an acceptable cost) that customers perceive as being different in ways that are
important
to them
If the firm has a thorough understanding of what its target customers value and how much of a premium they would be willing to pay - they can better use this strategy
the firm produces distinctive products for customers who value differentiated features more than they value low cost
it is expected to continuously innovate for newer needs of customer
the less similarity b/w its services to those of competitors, the better the buffer from rival actions.
Having up-to-date detailed / intimate knowledge of customers (specially priorities) is super helpful to know in which areas to innovate
pg 124 Fig 4.3 v. useful
rivalry with existing competitors - brand loyalty and reputation act as a buffer against competitors - but still must continue incrementally improving products while also exploring novel products to establish new markets
bargaining power of buyers - usually ok with inc in price as long as they don't see a better alternative and the product continues to satisfy their distinctive needs at an acceptable cost
bargaining power of supplier - Usually can pay higher prices to suppliers since customers relatively price insensitive; however, when out source an entire function (Specially R&D), become dependent on the supplier
potential entrants - customer loyalty and brand name big barriers to entry against them; new entrants are thus forced to invest significant resources and be patient on entry - do note that some new entrants might try coming through some foothold then expand- be vary of letting them establish
Product substitutes - Companies with high brand loyalty positioned well against substitutes, though those without risk their consumers shifting to companies with more attractive features / prices
Risk
Diff b/w cost leader and its price may become too much for customers - in which case should consider removing less valuable (to customers) but costly differentiations
Imitation of differentiation may result in lesser value of the original
Customer experiences (ie. them trying diff products) can narrow perception of value of differentiation - thus firms must always make sure they provide meaningful differentiation at a price they can afford
Counterfeiting of company logos etc might lead to consumer distrusting brand
Focus Strategies
Integrated set of actions taken to produce goods or service that serve the needs of a particular competitive segment
Serving a niche to the exclusion of others
Examples
a particular buyer (eg. Senior citizens)
a different segment of a product line (eg For proffessionals / do-it-yourself group)
a diff geography
through this, can gain competitive adv in a niche, even though it's not industry wide
essence - Exploitation of a narrow target's differences from the balance of the industry
Good idea to focus on communities with soo diff needs enough needs that bigger communities choose not to go that much out of the way for them
Can give value via focused differentiate or focused cost leadership
much likes their equivalent industry wide counter parts with the same factors for the 5 Porter's forces
Risk of focus strategies
Same risks as there industry wide counter parts but a couple more
A competitors focuses on an even more narrowly defined segment (ie. out focusing the focusser)
An industry wide big company might start competing in its niche
Needs of customers in the narrow segment might eventually become more similar to the general population
Integrated Cost leadership / Differentiation Strategy
Engage in primary value chain and support function activities that result in both low cost and differentiation
objective to efficiently produce products with some differentiated features
These firms are usually quicker to adapt to newer tech and rapid changes
However, this strategy inc the number of primary value chain activities and support functions in which the firm must be competent
This strategy is very difficult to implement effectively
Flexibility is required for the firms trying this strategy (3 particularly useful ways for this are)
Flexible Manufacturing systems
A computer controlled process used to produce a variety of products in moderate, flexible quantities with minimum of manual intervention
Aims to reduce the cost v/s variety trade-off
Information Networks
To connect suppliers, distribtuers, customers etc
Get better customer info
Be better prepared for the future
Total Quality Management System (TQM)
In a TQM effort, all members of an organization participate in improving processes, products, services, and the culture in which they work.
It helps firms identify opportunities to simultaneously dec costs and inc differentiation
Since TQMs are available to all competitors, allow the firm to perform at competitive parity (Rarely a source of competitive adv)
Firms use TQMs to
Inc customer satisfaction
Cut costs
reduce amount of time required to introduce innovative products to the marketplace
Risks
difficult to implement
Firms expected to simultaneously reduce costs and inc differentiation over time
May become stuck in the middel
ie. Cost structure not low enough to set attractive prices and differentiation not enough to give astounding value
Happens even if can't do 1 of cost leadership of differentiation successfully enough
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