Chapter 4 strategic management competitiveness and globalization 10e

PART 2: STRATEGIC ACTIONS:
STRATEGY FORMULATION

CHAPTER 4:
BUSINESS-LEVEL STRATEGY

Authored by:
Marta Szabo White, Ph.D
Georgia State University


THE STRATEGIC MANAGEMENT PROCESS

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KNOWLEDGE OBJECTIVES

● Define business-level strategy.

● Discuss the relationship between customers and business-level
strategies in terms of who, what, and how.

● Explain the differences among business-level strategies.

● Use the five forces of competition model to explain how aboveaverage returns can be earned through each business-level
strategy.

● Describe the risks of using each of the business-level
strategies.
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OPENING CASE
MORNING JOE IN THE AFTERNOON IN CHINA, INDIA, & BEYOND: THE NEW STARBUCKS

■ With the 2008 global financial crisis and competitors, e.g., McDonald’s gaining
market share, consumers were less willing to pay the high prices for premium
coffee, leading to a reduction in store sales for the first time in Starbucks’ history.
■ Starbucks appeared to be unable to control the quality of the “experience” and
began losing its differentiation advantage.

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OPENING CASE
MORNING JOE IN THE AFTERNOON IN CHINA, INDIA, & BEYOND: THE NEW STARBUCKS (cont’d)

■ CEO Howard Schultz closed 900 poorly performing stores in the United States and
refocused on innovation.
■ By 2011, with its 40

th

anniversary, a new logo, innovation such as VIA and customers

paying for their purchases with their iPhones, environmental consciousness, employee
health insurance, and a global focus on emerging markets such as China and India,
Starbucks was once again differentiating itself.

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IMPORTANT DEFINITION
BUSINESS–LEVEL STRATEGY: HOW
TO COMPETE IN A SPECIFIC INDUSTRY

■ An integrated and coordinated set of commitments and actions the firm uses
to gain a competitive advantage by exploiting core competencies in specific
product markets
■ It is the core strategy
■ Every firm must form and use a business-level strategy for each one of its
businesses
■ Business-level strategy choices matter because long-term performance is
linked to a firm’s strategies

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BUSINESS-LEVEL STRATEGY

ONE

•

A single-product market/single geographic location firm
employs one business-level strategy and one corporate-

BUSINESS-

level strategy identifying what or which industry the firm

will compete in

LEVEL
STRATEGY
•

A diversified firm employs a separate business-level
strategy for each product market area in which it

SEVERAL BUSINESS-

competes and one or more corporate-level strategies
dealing with product and/or geographic diversity

LEVEL STRATEGIES

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CORE COMPETENCIES AND STRATEGY

Resources and superior capabilities that are sources
Core Competencies

of competitive advantage over a firm’s rivals

An integrated and coordinated set of actions taken to
Strategy

exploit core competencies and gain competitive

advantage

Providing value to customers and gaining competitive
Business-level
Strategy

advantage by exploiting core competencies in
individual product markets

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CUSTOMERS: THEIR RELATIONSHIP TO BUSINESSLEVEL STRATEGIES

Who will be
served?

KEY ISSUES
in
BUSINESS-

What needs will
be satisfied?

LEVEL
STRATEGY

How will those
needs be satisfied?

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CUSTOMERS: THEIR RELATIONSHIP TO BUSINESSLEVEL STRATEGIES

Adept at identifying
customer needs across
cultures and geography

EFFECTIVE
GLOBAL
COMPETITORS

Quickly and successfully
adapt products/services
to meet those needs

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BUSINESS-LEVEL STRATEGIES
FIVE COMPETITIVE FORCES

GENERIC:
Applicable
to any

VALUE CHAIN
ACTIVITIES

organization in
any

RISKS for each Strategy

industry
Effective STRUCTURE
for each Strategy
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CUSTOMERS: THEIR RELATIONSHIP TO BUSINESSLEVEL STRATEGIES
SATISFYING CUSTOMERS IS THE FOUNDATION OF
SUCCESSFUL BUSINESS STRATEGIES

•
•
•
•
•

Managing relationships with customers
Reach, richness, affiliation
Who will be served
What needs will be satisfied
How those needs will be satisfied

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CUSTOMERS: THEIR RELATIONSHIP TO BUSINESSLEVEL STRATEGIES

REACH
Access and Connection

EFFECTIVELY
MANAGING
RELATIONSHIPS
WITH
CUSTOMERS

to Customers

RICHNESS
Depth and Detail of Two-Way Flow
of Information Between
the Firm and Customer

AFFILIATION
Facilitating Useful Interactions
With Customers

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WHO: DETERMINING THE CUSTOMERS TO SERVE

MARKET SEGMENTATION
A process used to cluster people with similar needs into
individual and identifiable groups

Consumer

Industrial

Markets

Markets

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MARKET SEGMENTATION:
CONSUMER MARKETS

1. DEMOGRAPHIC FACTORS

(age, income, sex, etc.)
2. SOCIOECONOMIC FACTORS
(social class, stage in the family life cycle)
3. GEOGRAPHIC FACTORS
(cultural, regional, and national differences)
4. PSYCHOLOGICAL FACTORS
(lifestyle, personality traits)
5. CONSUMPTION PATTERNS
(heavy, moderate, and light users)
6. PERCEPTUAL FACTORS
(benefit segmentation, perceptual mapping)

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MARKET SEGMENTATION:
INDUSTRIAL MARKETS

1. END-USE SEGMENTS

(identified by SIC code)
2. PRODUCT SEGMENTS
(based on technological differences or
production economics)
3. GEOGRAPHIC SEGMENTS
(defined by boundaries between countries
or by regional differences within them)
4. COMMON BUYING FACTOR SEGMENTS
(cut across product market and geographic
segments)
5. CUSTOMER SIZE SEGMENTS
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WHAT: DETERMINING WHICH CUSTOMER NEEDS TO
SATISFY
■ Customer needs are related to a product’s benefits and
features
■ Customer needs are neither right nor wrong, good nor
bad
■ Customer needs represent desires in terms of features
and performance capabilities
■ Successful firms learn how to deliver to customers what

they want, when they want it
Customers are the lifeblood of a firm

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HOW: DETERMINING CORE COMPETENCIES NECESSARY TO
SATISFY CUSTOMER NEEDS

■ Firms use core competencies to implement value creating
strategies that satisfy customers’ needs
■ Value means goods or services that provide either low cost
with acceptable features or highly differentiated features with
acceptable costs
■ Only firms with capacity to continuously improve, innovate,
and upgrade their competencies can expect to meet and/or
exceed customer expectations across time

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CUSTOMERS:
HOW ● WHAT ● WHO

WHAT:

WHO:

Satisfy Customer

Target Group of

Needs

Customers

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BUSINESS-LEVEL STRATEGY
PURPOSE

BUSINESS-LEVEL STRATEGIES
are intended to create differences between the
firm’s position relative to those of its rivals
To position itself, the firm must decide whether it intends to:
● Perform activities differently, or
● Perform different activities as compared to its rivals

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BUSINESS-LEVEL STRATEGY
PURPOSE

BUSINESS-LEVEL STRATEGY
is a deliberate choice about how the firm will
perform the value chain activities to create unique
value
Southwest’s Competitive Advantages (rivals unable

to imitate):
● Tight integration among activities
● Cost leadership strategy
● Unique culture and customer service
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BUSINESS-LEVEL STRATEGY
PURPOSE

FIGURE 4.1
Southwest Airlines Activity
System

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SOURCES OF COMPETITIVE ADVANTAGE

■ Achieving LOWER OVERALL COSTS than rivals
■ Performing activities differently (reducing process costs)
■ Providing a low cost product that customers deem as ACCEPTABLE
■ Possessing the capability TO DIFFERENTIATE the firm’s product or
service and command a premium price
■ Performing MORE HIGHLY VALUED activities

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FIVE GENERIC BUSINESS-LEVEL STRATEGIES

FIGURE 4.2

Five Business Level
Strategies

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TARGET MARKETS

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