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Chapter 8: Business Level Stratergies - Coggle Diagram
Chapter 8: Business Level Stratergies
Strat is about position the org for a long term competitive advantage
Primary aim is to create value for customers and shareholders
Importance of strat goals;
specifies what the orgs want to achieve over the next few years
Long-term goals get translated into short term goals
represents the managments devotion to achieving certain performance goals
2 Advantages;
replaces aimless roaming with purposeful strategic decision making
Provides a set of benchmarks for the evaluation of org performance
Types of goals,
Profitability
Productivity
Competitive Position
Human resource
Requirements for a good strat goal,
must be
SMART
Take
competition into account
Business Level Strategy;
assist it in
competing in the marketplace
on a
day-to-day basis
.
2 key contributions of the business-level strats to an org;
Develop a Sustainable competitive advantage
Value Creation
intent of the org is to **obtain and sustain a competitive advantage in the industry in which it operates
Value creation this implies;
Greater effectiveness
through differentiated treatment according to the needs, value, risk, vulnerability and potential of customers.
Being right the first time
,
Implying efficient and effective processes/ transactions.
Better margins
, Value is created through lower prices for the client
Competitive Advantage;
distinguishes an org from its competitors
achieved through distinctive competencies
, that competitors will not be able to copy readily
Competitive advantage should fulfill certain criteria:
Relate to an attribute that has value and relevance for customers
Be perceived the customer as a competitive advantage
Be sustainable
Sustainable competitive advantage:
competitive strat is all about the
activities
orgs undertake to gain a
competitive advantage
in a
particular industry
2 types of competitive advantages:
low cost or differentiation
is a sustainable competitive sustainable competitive strat, that cannot be imitated by competitors
Level strategy;
Corporate Level Strats(What the overall scale and scope of the org is)
Business level strategies(How to remain competitive in particular markets)
Functional or operational level strategies(How to deliver on the corporate and business level strategies)
5 Generic Business level strategies(for achieving competitive advantage)
Low-Cost Provider
- aims to achieve
lower overall cost
than rivals on products that attract
broad
spectrum of buyers
Broad differentiation
- Differentiation the firms product offering from rivals with
attributes that appeal to a
broad** spectrum of buyers.
Focused Low-Cost
- Concerting on a
narrow price-sensitive buyer
segment and
costs
to offer a lower-priced product
Focused Differentiation
- concentrating on a
narrow buyer segment
,by meeting
specific
tastes and requirements of niche members
Best- cost provider(hybrid strategy)
- Giving the customers
value for money
, by offering
upscale
product attributes at a lower cost than rivals
Cost Leadership vs Low-Cost provider strat (Bread):
orgs that use cost leadership aim to sell a pdt that appeals to a broad target(get the money by quantity not quality)
2 ways to accomplish cost advantage:
out-manage rivals with efficient value chain activities
Revamp the orgs overall value chain to eliminate cost-producing activities
cost that must be managed according to cost leadership strat
EoS
Experience and learning-curve effects
Cost-saving tech
Improved efficiencies and effectiveness through spch mngmnt
When is Cost leadership the best strat to follow:
org has the ability or chance to reduce cost across the spch
Customer is price sensitive(high bargaining power)
Price competition among competitors is vigorous(intense)
Pros:
Cost leader can charge a lower price
built to handle more competition due to low costs
greater protection from competitors by its cost advantage
Cons:
Competitors can produce lower costs and beat the low-cost provider
the method of development and production is easy to copy
lose sight of changes in customers taste
Broad Differentiation Strats (KFC);
consists of differences in the orgs pdt or serv offering by creating something that is perceived as unique and valued by the customers
Successful differentiation allows an org to 1+:
Command a premium price for its pdts and serv
Incr it unit sales
Gain buyer loyalty to its brand
When is it best to follow this strat:
when brand loyalty is high enough for consumers not to switch
Differentiated pdts and servs can be designed in such away that the have a wide appeal to various industries
Only few competitors follow the same differentiation approach
Pros:
no threat of sub pdts or serv
creates a barrier to entry for other orgs
unlikely to experience problems with powerful buyers
Cons:
org may not really succeed in remain unique to the consumer
too much differentiation
Overspending to differentiate the orgs pdts and serv offering can erode profitability
Focused strategy:
Differs from the past 2 mainly by the direction towards serving the needs of a limited customer group or segment
Geographical location(gauteng)
Region or locality(the city)
Customer type(youth market)
Market segment
orgs can create value for customers in a specific market segment by utilizing the Cost leadership(FCLS) or differentiation(FDS) approach
When to is it best to use this strat:
FDS customers are loyal where as FCLS brand loyalty doesn't play a factor
Customers are willing to pay a higher premium for perceived value that they attack to a customized product in a FDS
Gives smaller orgs a chance to compete without direct competition from large orgs(pg 194)
Best Cost Strat:
a plan that integrates the features of Cost leadership and Differentiation into 1 strat
Orgs that successfully integrate the 2 strats to find their competitive advantage often more difficult for competitors to imitate
objective is to produce lower costing pdts with differentiated features
When is it the best to use:
in markets where buyers' diversity makes differentiation the norm and where buyers are also price sensitive
Customers are price as well as quality sensitive, due to demand and value for money
Competition is tough in this type of value- conscience market and at the same time there are not really barriers of entry
Pros;
Competitive Advantage is often more difficult for competitors to imitate.
This integrated strat has a positive relationship with an above-average return and profitability
Best Cost strat assists orgs in providing value in terms of differentiated attributes as well as lower prices
Cons:
Can fail to meet both differentiation and low cost and may be stuck limbo
orgs may underestimate the challenges and expenses associated with this strat and may end up with lower profitability
orgs can fail to calculate the resources of revenue and the needs of customers within the industry, failing to achieve the expected profitability and profit growth