SBU Business Strategy (Week 6)

SBU Business Strategy (Week 6)

1. Generic Strategies

   • Cost Leadership
     • Economies of Scale
       • Fixed costs spread over larger output
       • Average cost of production decreases
     • Broad market scope
     • Low cost Strategy
   • Differentiation
     • Broad market scope
     • Differentiation strategy
     • Differentiating features allow charging of higher prices
   • Focus
     • Narrow market scope
     • Cost Focus
       • Where broader cost strategies fail due to added costs of satisfying a wider market
     • Differentiation Focus
       • Find specific needs that broader differentiators don't serve well
       • Focus on one need...
         • Build specialist knowledge
         • Increase commitment to P&S
         • Improve brand recognition
         • Improve customer loyalty
     • Tailors P&S to needs of specific market
       • Ignores others
     • Attend weak spots of broad cost and differentiators
     • 3 Strategies
       • Distinct segment needs
         • If this erodes, harder to defend against broader rivals
       • Distinct segment value chains
         • Chains difficult or costly for rivals to construct
         • If processes/distribution channels are similar, it's easier for a broader rival to produce a differentiated product through its standardised value chain at a lower cost
       • Viable segment economics
         • Segments may become too small to serve as demand or supply conditions change
   • Don't half ass it!
     • The lowest-cost rival can always undercut the second lowest
       • No sense to add extra costs by half assing differentiation
   • The Strategy Clock
     • 3. Hybrid (Zone 3)
       • 9-12; lower prices than D + higher value than low-price
       • Often used for aggressive bids on market share
       • e.g. IKEA
     • PRICE to CUSTOMERS (not to firm)
     • Prices more visible, i.e. easily compare with rivals
     • More continuous choices for strategy, allows incremental adjustments
     • 1. Differentiation (Zone 1)
       • Build high perceptions of P&S benefits
       • Close to 12 is D without price premium
         • High benefits, moderate prices
           • Only sustainable short-term if high costs, too
       • 1-2; D with price premium
       • 2; D focus
     • 2. Low Price (Zone 2)
       • Low price, low value
       • 9; low-price strategy with reasonable value (parity)
       • 7; no-frills, low price and low value
       • MUST have cost advantage supporting this!
     • 4. Non-Competitive (Zone 4)
       • Low value, high prices
       • FAILURE!

2. Interactive Strategies

   • Hypercompetitive
     • Very fast-moving environments
   • Cooperative Strategies
     • Can give rivals an edge over the rest, or new entrants
     • Suppliers
       • Increased purchasing power against them
       • Standardised benefits with S
     • Buyers
       • Increased power against buyers
       • Standardisation benefits with buyers
     • New Entrants
       • Improved costs or benefits - reduces threat
       • Coordinated retaliation
     • Substitutes
       • Improved costs or benefits - reduces threat
   • Firms must stay on the 'value line' in order to meet customer needs
     • Shifts in the value line alter customer expectations of price and quality
   • These viable positions along the line are always at risk of being superseded by rivals moving down or out

3. Competitive Strategy

   • How an SBU achieves C.A in its domain of activity
     • e.g. costs, P&S features, branding

4. Competitive Advantage

   • How an SBU creates value for users both greater than costs of supplying and superior to rival SBUs
     • Competitive
       • Users see value, willing to pay more than cost of supply
     • Advantage
       • Create greater value than rivals
     • If no CA, a CS is always vulnerable to rivals with better products!
   • 1. Lower Costs
   • 2. Differentiated