Q1. What is Strategy? What are the various types of business level strategy?
Business level Strategy: A strategy design for a firm or a division of firms that
competes within a single business.
Generic Strategy: An analysis of business strategy into basic types based on breadth
of target market and type of competitive advantage.
Types: Three generic strategies to overcome the five forces and achieve competitive
advantage:
1. Overall cost leadership: Low-cost-position relative to a firms peers, Manage
relationships throughout the entire value chain. Example: Companies pursuing an
overall cost leadership strategy
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McDonalds
Wal-Mart
2. Differentiation: Create products and/or services that are unique and valued, Nonprice attributes for which customers will pay a premium. Example: Companies pursuing
a differentiation strategy
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Harley Davison
Apple
3. Focus strategy: Narrow product lines, buyer segments, or targeted geographic
markets, Attain advantages either through differentiation or cost leadership. Example:
Companies pursuing a focus strategy
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Rolex
Lamborghini
Integrated tactics of Overall Cost Leadership:
Aggressive construction of efficient-scale facilities
Vigorous pursuit of cost reductions from experience
Tight cost and overhead control
Avoidance of marginal customer accounts
Cost minimization in all activities in the firms value chain, such as R&D, service,
sales force, and advertising.
Q.2 Value-Chain Activities: Overall Cost Leadership
A firm following an overall cost leadership position
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Must attain parity on the basis of differentiation relative to competitors
Parity on the basis of differentiation
Permits a cost leader to translate cost advantages directly into higher profits than
competitors
Allows firm to earn above-average profits
Overall Cost Leadership: Improving Competitive Position vis--vis the Five
Forces
An overall low-cost position
Protects a firm against rivalry from competitors
Protects a firm against powerful buyers
Provides more flexibility to cope with demands from powerful suppliers for input
cost increases
Provides substantial entry barriers from economies of scale and cost advantages
Puts the firm in a favorable position with respect to substitute products
Pitfalls of Overall Cost Leadership Strategies:
Too much focus on one or a few value-chain activities: Too often managers make big
cuts in operating expenses, but dont question year-to-year spending on capital projects.
Should explore all value-chain activities as candidates for cost reductions
All rivals share a common input or raw material: Vulnerable to price increases.
The strategy is imitated too easily:
A lack of parity on differentiation: To attain advantage, must obtain level of differentiation.
Can be achieved by reputation, quality, through signaling mechanisms.
Erosion of cost advantages when the pricing information available to customers
increases
Q3. Differentiation can take many forms
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Prestige or brand image- BMW automobile, Rolex Watches.
Technology- Martin Guitars
Innovation- Apple Ipads
Features- Honda Gold wing Motorcycle
Customer service- American Express
Dealer network- Lexus Automobile
Design- Bang, Diesel Blue jeans
Value-Chain Activities: Differentiation
Firms may differentiate along several dimensions at once
Firms achieve and sustain differentiation and above-average profits when price
premiums exceed extra costs of being unique
Successful differentiation requires integration with all parts of a firms value chain
An important aspect of differentiation is speed or quick response
Differentiation: Improving Competitive Position via the Five Forces
Differentiation
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Creates higher entry barriers due to customer loyalty
Provides higher margins that enable the firm to deal with supplier power
Reduces buyer power because buyers lack suitable alternative
Reduces supplier power due to prestige associated with supplying to highly
differentiated products
Establishes customer loyalty and hence less threat from substitutes
Potential Pitfalls of Differentiation Strategies:
Uniqueness that is not valuable: Must be unique and possess high customer value.
Too much differentiation: Firms may strive for too much quality.
Too high a price premium: Customers may desire product, but repelled by price.
Differentiation that is easily imitated:
Dilution of brand identification through product-line extensions: Increase short-term
revenues, detrimental in long run.
Perceptions of differentiation may vary between buyers and sellers: Beauty is in the
eye of the beholder
3. Focus: Focus is based on the choice of a narrow competitive scope within an
industry
Firm selects a segment or group of segments (niche) and tailors its strategy to serve
them
Firm achieves competitive advantages by dedicating itself to these segments
exclusively
-Two variants
Cost focus: Strives to create a cost advantage in its target segment
Differentiation focus: Seeks differentiate in target market
Pitfalls of Focus Strategies
Erosion of cost advantages within the narrow segment
Focused products and services still subject to competition from new entrants and
from imitation
Focusers can become too focused to satisfy buyer needs
Q5. Industry Life-Cycle Stages Strategic Implications?
Life cycle of an industry:
Introduction
Growth
Maturity
Decline
Emphasis on strategies, functional areas, value-creating activities, and overall
objectives varies over the course of an industry life cycle.
Stages of the Industry Life Cycle:
i. Introduction Stage: The 1st stage of the ILC characterized by
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New product that are not known to customers,
Poorly defined market segments
Unspecified product features
Low sales growth
Rapid technological change
Operating Losses
ii. Growth Stage: Its characterized by
Strong increases in sales
Growing Competition
Developing brand recognition
A need for financing complementary value chain activities such as marketing, sales,
customers services
iii. Maturity Stage: Characterized by
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- Slowing Demand growth
- Saturated markets
- Direct Competition
- Price Competition
- Strategic Emphasis
iv. Decline Stage:
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Falling sales and profit
Increasing price competition
Industry consolidation
Strategies in the Decline Stage:
i. Maintaining: Refers to keeping a product going without significantly reducing
marketing support, technological development or other investment, in the hope that
competitors will eventually exit the market.
ii. Harvesting: A strategy of wringing as much profit as possible out of a business in the
short to medium term by reducing costs.
iii. Exiting the market: It involves dropping the product from a firms portfolios. Since
residual core of consumers exist, eliminating it should be carefully considered.
iv. Consolidation: A firms acquiring or merging with other firms in an industry in order
to enhance market power and gain valuable assets.
Q4. Explain the Dimensions and pitfalls of cost leadership and differentiation.
