What is the business level strategy about?
- Whom a company wants to serve
- What customer needs
- Desires of the company to satisfy
- how the company decides to satisfy those needs and desires
What are the two basic ways a company chooses how to compete in a market
- Lower costs
- Differentiate product offered by competition to create more value
What are the advantages of low costs
- Enables company to make a profit at price points where rivals are losing money
- Allow company to gain market share
What is differentiation
Differing itself from rivals by offering things that are hard to match
How do companies differentiate themselves
- Superior reliability
- Better designs
- Superior functions and features
- Better point of sale service
- Better after sales service and support
- Better branding
What are the advantages of differentiation
- Charge at a premium price
- Help grow demand and capture market share from its rivals
What is the trade off
Managers must make a choice between choosing basic ways of attaining a competitive advantage
What does successful differentiation give
Options to managers to raise prices and cover any incremental increase in costs
What is efficiency frontier
Shows different positions companies can adopt differentiation and low costs
Why does the efficiency frontier have a convex shape
Diminishing returns
What is diminishing returns
Company has significant differentiation built into its product, increasing more by a small amount requires significant additional costs
What is market segmentation
Refers to the process of subdividing the market into clearly identifiable groups of customers with similar needs, desires and demand characteristics
What type of customers are within the market segments
Relatively homogenous and differ in important ways from customers in other segments of the market
What are the three approaches to market segmentation
- Standardization strategy
- Segmentation strategy
- Focus strategy
Which approach is associated with lower costs
Standardization strategy
How can companies successfully implement a business level strategy and reach the efficiency frontier
- Must pursue right functional level strategies and be organized
- Business level strategy, functional level strategy and organizational arrangement must be all in alignment
What is standardization strategy
Targets the average customer in that market
What is segmentation strategy
Customize its product offering to different segments, producing multiple offers
What is focus strategy
Target limited number of market segments or just one and become the very best at serving that particular segment
What are the costs and revenues of standardization strategy
- Associated with lower costs
- Involves producing basic offerings and trying to attain economies of scale by achieving high volumes of sales
What are the costs of segmentation strategy
- Company sells less of each offering making it harder to achieve economies of scale
- costs of production and delivery because products are aimed for higher income segments
How can customization drive up costs
- Company may sell less of offering
- Products may require more functions and features
What is a focus strategy for higher segments
Higher income = higher costs
What is the focus strategy for lower segments
More basic offers that is inexpensive to produce and delivery
