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Chapter 4

Comm 401 Chapter 4.docx


Department
Commerce
Course Code
COMM 315
Professor
All
Chapter
4

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Chapter 4- Business-Level Strategy
A business-level strategy is 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.
Business-level strategy indicates the choices the firm has made about how it intends to
compete in individual product markets.
Every firm must form and use a business-level strategy. However, every firm may not use all
the strategies- corporate-level merger and acquisition, international, and cooperative.
Thus business-level strategy is the core strategy—the strategy that the firm forms to describe
how it intends to compete in a product market.
In terms of customers, when selecting a business-level strategy the firm determines (1) who
will be served, (2) what needs those target customers have that it will satisfy, and (3) how
those needs will be satisfied.
Customers: Their Relationship with Business-Level Strategies
A key reason firms must satisfy customers with their business-level strategy is that returns
earned from relationships with customers are the lifeblood of all organizations.
The most successful companies try to find new ways to satisfy current customers and/or to
meet the needs to new customers.
Effectively managing relationships with customers
The firm’s relationships with its customers are strengthened when it delivers superior value to
them. Strong interactive relationships with customers often provide the foundation for the firm’s
efforts to profitably serve customers’ unique needs.
Anticipate customers’ needs.
Firms’ relationships with customers are characterized by 3 dimensions:
Reach, richness and affiliation:
1) Reach: concerned with the firm’s access and connection to customers. Extend reach, adding
customers in the process by doing so.
2) Richness: concerned with the depth and detail of the two-way flow of information between the
firm and the customer. (using internet services—benefits customers’ knowledge about
company and company’s knowledge about customers’ needs)
3) Affiliation: concerned with facilitating useful interactions with customers. Viewing the world
through the customer’s eyes and constantly seeking ways to create more value for the
customer have positive effects in terms of affiliation.
 effectively managing customer relationships helps the firm answer questions related to the issues of:
who, what and how
1) Who: Determining the customer to serve
Who the target customer is that the firm intends to serve with its business-level strategy.
Market segmentation: process that clusters people with similar needs into individual and
identifiable groups.
Common characteristics on which customers’ needs vary: consumer markets (demographic,
geographic…), industrial markets (end-use segments, product segments (based on
technological differences or production economics)…)
2) What: Determining which customer needs to satisfy
Deliver what they want and when they want it.
Buy products that creates value to them.
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Either low cost with acceptable features or highly differentiated features with acceptable cost.
3) How: Determining core competencies necessary to satisfy customer needs
How to use its capabilities and competencies to develop products that can satisfy the needs of
its target customers.
Firms use core competencies (how) to implement value-creating strategies and thereby satisfy
customers’ needs.
Core competencies: are resources and capabilities that serve as a source of competitive
advantage for the firm over its rivals.
The purpose of a Business-Level Strategy
The purpose of a business-level strategy is to create differences between the firm’s position
and those of its competitors.
Must decide whether it intends to perform activities differently or to perform different activities.
Integrate the activities they perform (develop activity map).
E.g. southwest: use of its cost leadership strategy. Six strategic themes: limited passenger
service; frequent, reliable departures; lean, highly productive ground and gate crews; high
aircraft utilization….
Strategic fit among activities is fundamental not only to competitive advantage but also to the
sustainability of that advantage.
Harder for a rival to imitate an array of interlocked activities.
Types of Business-Level Strategies
Each business-level strategy helps the firm to establish and exploit a particular competitive
advantage within a particular competitive scope.
Competitive scope: broad target vs. narrow target
Competitive advantage: Cost vs. uniqueness
1) Cost Leadership Strategy
In an integrated set of actions taken to produce goods or services with features that are
acceptable to customers at the lowest price, relative to that of competitors.
Standardized goods or services, process innovations to operate more efficiently= critical.
But concentrating only on recusing costs could result in the firm efficiently producing products
that no customer wants to purchase.
It is still important to create value for customers.
Uses a broad customer segment or group.
Cost leaders seeking ways to reduce costs may want to concentrate on the primary activities
of inbound logistics and outbound logistics.
Support activities: procurement support activity: developing new systems for finding the
optimal combination of low cost and acceptable levels of differentiation in the raw materials
required to produce the firm’s goods and services.
** see figure 4.3
Rivalry with existing competitors: rivals hesitate to compete on the basis of price.
Bargaining Power of buyers (customers): powerful customers can force a cost leader to
reduce its prices, but not below the level at which the cost leader’s next-most-efficient industry
competitor can earn average returns.
Bargaining power of suppliers: higher gross margins relative to those of competitors make it
possible for the cost leader to absorb its suppliers’ price increases. Also may be able to force
its suppliers to hold down their prices. (Wal-Mart)
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