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1、Business Strategy: Differentiation, Cost Leadership, and Integration,Part 2 Strategy Formulation,6-2,LO 6-1 Define business-level strategy and describe how it determines a firms strategic position.LO 6-2 Examine the relationship between value drivers and differentiation strategy.LO 6-3Examine the re
2、lationship between cost drivers and cost-leadership strategy.LO 6-4Assess the benefits and risks of cost-leadership and differentiation business strategies vis-vis the five forces that shape competition.LO 6-5Explain why it is difficult to succeed at an integration strategy.LO 6-6Evaluate value and
3、cost drivers that may allow a firm to pursue an integration strategy.LO 6-7Describe and evaluate the dynamics of competitive positioning.,6-3,ChapterCase 6,Trimming Fat at Whole Foods Market,Whole FoodsBusiness Strategy RevitalizationStarted as small natural-foods store 1980Became market leader; dif
4、ferentiation through organics and quality Competitive advantage through 2008CEO John Mackey: Refocused Mission, Reduced Costs,6-4,Trimming Fat at Whole Foods Market,Whole Foods: Increasing the Value GapWhat are the key issues in the opening case?New Strategic Intent: Become the champion of healthy l
5、ivingNew differentiation appeal“Trim the Fat”Expansion of private-label products/volume discountsLow-cost suppliers/enhanced logistics system,ChapterCase 6,6-5,Business-Level Strategy: How to Compete for Advantage?,Answer the “Who, What, Why, and How” Who - which customer segments to serve?What need
6、s, wishes, desires will we satisfy?Why do we want to satisfy them?How will we satisfy customers needs?Details actions managers take in quest for competitive advantageSingle product or group of similar products,6-6,EXHIBIT 6.1,Industry and Firm Effects Jointly Determine Competitive Advantage,6-7,Stra
7、tegic Position,Determined by Firms Business-Level StrategyTwo primary competitive levers:Value (V)Cost (C)Economic Value Created: (V-C)The greater (V-C) = Competitive AdvantageStrategic Position Based on:Value creation Cost,6-8,Strategic Trade-offs,Cost or Value Position?Higher Value = Higher CostsV
8、alue Creation Costs = Value GapA business strategy is more likely to lead to competitive advantage if either:Perform Similar Activities DifferentlyORPerform Different Activities,6-9,Generic Business Strategies,Different generic strategies can lead to competitive advantage in the same industry.Differ
9、entiationHigher Value; Unique FeaturesRolex Cost-LeadershipSimilar Value; Lower CostTimexScope of CompetitionNarrow (Focused)RolexBroadTimex,6-10,EXHIBIT 6.2,Strategic Position and Competitive Scope: Generic Business Strategies,6-11,Small Group Exercise Generic Business-Level Strategies,Ann TaylorMc
10、Kinsey & CoBicNikeBig LotsPatek PhilippeBlack & DeckerPorscheClif BarRhapsodyCoca-ColaRolls-RoyceDollar StoresRyanairGoogleSamuel AdamsGoya Foods Singapore AirlinesGreyhound LinesTargetKia MotorsToyotaLands EndVanguardLiberty MutualVictorias SecretLouis VuittonWellPointMartin GuitarsZara,Place each
11、firm you know in one of the four categories of generic business strategies1) broad cost-leadership 2) focused cost-leadership 3) broad differentiation4) focused differentiation Explain your choices.What are some common features for firms you have placed within each category?,6-12,LO 6-1 Define busin
12、ess-level strategy and describe how it determines a firms strategic position.LO 6-2 Examine the relationship between value drivers and differentiation strategy.LO 6-3Examine the relationship between cost drivers and cost-leadership strategy.LO 6-4Assess the benefits and risks of cost-leadership and
13、differentiation business strategies vis-vis the five forces that shape competition.LO 6-5Explain why it is difficult to succeed at an integration strategy.LO 6-6Evaluate value and cost drivers that may allow a firm to pursue an integration strategy.LO 6-7Describe and evaluate the dynamics of competi
14、tive positioning.,6-13,Value Drivers,Product FeaturesMost important & clearest driversUnique product features higher priceBMW M3Customer ServiceID unmet customer needs & satisfy themZappos online retailerToyota Lexus brand,CustomizationTailoring for specific customers“Mass customization”Threadless T
15、-shirtsComplementsAdd value when consumed in tandemDVR (i.e., Tivo),6-14,EXHIBIT 6.3,Value Drivers: Differentiation,Differentiation:Product features, customer service, customization, and complementsCompetitive advantage = economic value created (V-C) competitorsMarriott line of Hotels,6-15,116,STRAT
16、EGY HIGHLIGHT 6.1,Toyota: From “Perfect Recall” to “Recall Nightmare”,Toyotas strategic challenges.Launched Lexus 1989Luxury car segment dominated by Mercedes-Benz, BMW, CadillacLS400 line required recall a little over a year after launchTurned threat into opportunity to establish reputation for sup
17、erior customer serviceTwo years after launch Lexus ranked first on quality and customer satisfaction by J.D. Powers2010 Toyota has largest recall in automotive historyNeeded to exhibit superior customer responsiveness again8 million vehicles recalled was much more challenging,6-16,EXHIBIT 6.4,Cost D
18、rivers: Cost-Leadership,Cost Leadership:Cost of input factors, economies of scale, and learning-curve and experience-curve effectsCompetitive advantage = economic value created (V-C) competitorsWalmart vs. KmartDell vs. Compaq, Gateway, & HP,6-17,118,STRATEGY HIGHLIGHT 6.2,Ryanair: Lower Cost than t
19、he Low-Cost Leader!,The “Southwest Airlines of Europe”“Lowest-cost airline in the world”No window shades on older planes, seats dont recline, etc.Fares as low as $8Numerous fees and surcharges: pillows, blankets, check-in, etc.20+% of revenues flow from ancillary services,6-18,Ryanair Sample Revenue
20、 Calculation,6-19,Small Group Exercise Ryanair,How to make profits on an $8 ticket? Are extra fees properly disclosed ?Check out Are the fees transparent? If you were a competitor (e.g., Aer Lingus or Lufthansa)How would you compete against Ryanair?Cost parity is unlikely,6-20,Cost Drivers: Inputs &
21、 Scale,Input FactorsLower-cost materials, money or labor. De Beers diamondsAlcoa bauxiteGE CapitalEconomies of ScaleIncreased output decreased cost per unitSpread fixed costsCube-square ruleBoeing Aircraft Carrefour retailer,6-21,Economies and Diseconomies of Scale,Economies of Scale output up, cost
22、 per unit downMicrosoft upfront R&D for Windows 7Very low marginal costs to make copies of the operating systemSpecialized SystemsERP software or robotsPhysical PropertiesCube-square rule for big box storesMinimum Efficient Scale (MES)Lowest cost position constant returns to scaleDiseconomies of Sca
23、leComplexity of management or physical limitsW. L. Gore and aircraft aeronautics,6-22,EXHIBIT 6.5,Economies of Scale and Diseconomies of Scale,6-23,Big Box Retailers Advantage,Cube-Square Rule: Each dimension increases 50% (2 goes to 3) BUTEach volume increases 237.5% (8 goes to 27) !,6-24,Cost Driv
24、ers: Learning & Experience Curves,Learning Curves“Learn by doing”Steeper curve more learningAircraft manufacturingCardiac surgeonsExperience CurvesCombine economy of scale & learning curvesScale comes down a given learning curveTechnology allows movement to steeper curveCombination can leapfrog in c
25、ompetitive advantageWalmart high volumes & technology leadership,6-25,The Learning Curve,6-26,EXHIBIT 6.6,Gaining Competitive Advantage Through Learning and Experience Curves,6-27,LO 6-1 Define business-level strategy and describe how it determines a firms strategic position.LO 6-2 Examine the relat
26、ionship between value drivers and differentiation strategy.LO 6-3Examine the relationship between cost drivers and cost-leadership strategy.LO 6-4Assess the benefits and risks of cost-leadership and differentiation business strategies vis-vis the five forces that shape competition.LO 6-5Explain why
27、it is difficult to succeed at an integration strategy.LO 6-6Evaluate value and cost drivers that may allow a firm to pursue an integration strategy.LO 6-7Describe and evaluate the dynamics of competitive positioning.,6-28,EXHIBIT 6.7,Competitive Positioning and the Five Forces,6-29,LO 6-1 Define bus
28、iness-level strategy and describe how it determines a firms strategic position.LO 6-2 Examine the relationship between value drivers and differentiation strategy.LO 6-3Examine the relationship between cost drivers and cost-leadership strategy.LO 6-4Assess the benefits and risks of cost-leadership an
29、d differentiation business strategies vis-vis the five forces that shape competition.LO 6-5Explain why it is difficult to succeed at an integration strategy.LO 6-6Evaluate value and cost drivers that may allow a firm to pursue an integration strategy.LO 6-7Describe and evaluate the dynamics of compe
30、titive positioning.,6-30,INTEGRATION STRATEGY: COST LEADERSHIP AND DIFFERENTIATION,Trade-offs between low cost & differentiationValue & Cost Drivers of IntegrationQualityCan increase perceived value & lower cost (V-C) Economies of ScopeStarbucks adding hot tea to its menuInnovationIKEA - stylist fur
31、niture in flat pack deliveryStructure, Culture, & RoutinesAmbidextrous organization explore AND exploitIntel current and future products and services,6-31,EXHIBIT 6.8,Avon Pursuing an Integration Strategy,6-32,EXHIBIT 6.9,Value and Cost Drivers,6-33,Integration Strategy Corporate Level,Conglomerates
32、 can coordinate above the SBU levelTata Group from India2008 bought Jaguar & Land RoverPrestigious differentiated products2009 Tata Motors creates a Nano carLowest-priced car in the world!Zero to 60 mph in 30 secondsNo radio or glove boxTargets bicyclists to move to cars,6-34,LO 6-1 Define business-
33、level strategy and describe how it determines a firms strategic position.LO 6-2 Examine the relationship between value drivers and differentiation strategy.LO 6-3Examine the relationship between cost drivers and cost-leadership strategy.LO 6-4Assess the benefits and risks of cost-leadership and diff
34、erentiation business strategies vis-vis the five forces that shape competition.LO 6-5Explain why it is difficult to succeed at an integration strategy.LO 6-6Evaluate value and cost drivers that may allow a firm to pursue an integration strategy.LO 6-7Describe and evaluate the dynamics of competitive
35、 positioning.,6-35,THE DYNAMICS OF COMPETITIVE POSITIONING,Strategic Positions need to change over timeeBay withdrew from selling new goods & sold SkypeProductivity FrontierValue-cost relationshipCaptures the best practices at a point in timeMobile Devices2005 Apple differentiator, Dell cost leader2
36、010 Apple still differentiator, HP moving to successful integrator, Dell shifting toward integrator,6-36,EXHIBIT 6.10,The Dynamics of Competitive Positioning: Apple, HP, and Dell,6-37,CHAPTERCASE 6 Consider This,Whole Foods continues to seek ways to differentiate 2010 enhanced its “back to school” p
37、rogram300 salad bars in public schools within 50-mile radius of any Whole Foods store2011 expanded to 500 elementary, middle, and high schools across the U.S.Expanding in-store educational efforts with “wellness clubs”What value drivers is Whole Foods using to remain differentiated in the face of Wa
38、lmart and others now selling organic foods?Given the discussion in the ChapterCase about Whole Foods trimming its cost structure, does the firm risk being “stuck in the middle”? Why or why not?What other methods could Whole Foods use to successfully drive its business strategy?,Whole Foods John Mack
39、ey Video,6-38,LO 6-1Define business-level strategy and describe how it determines a firms strategic position.Business-level strategy determines a firms strategic position in its quest for competitive advantage in a single industry or product market.Strategic positioning requires that managers addres
40、s strategic trade-offs that arise between value and cost, because higher value tends to go along with higher cost.Differentiation and cost leadership are distinct strategic positions.Besides selecting an appropriate strategic position, managers must also define the scope of competitionwhether to pur
41、sue a specific market niche or go after the broader market.LO 6-2Examine the relationship between value drivers and differentiation strategy.The goal of a differentiation strategy is to increase the perceived value of goods and services so that customers will pay a higher price for additional featur
42、es.,Take-Away Concepts,6-39,In a differentiation strategy, the focus of competition is on non-price attributes.Some of the unique value drivers managers can manipulate are product features, customer service, customization, and complements.Value drivers contribute to competitive advantage only if the
43、ir increase in value creation (V) exceeds the increase in costs (C).LO 6-3Examine the relationship between cost drivers and cost-leadership strategy.The goal of a cost-leadership strategy is to reduce the firms cost below that of its competitors.In a cost-leadership strategy the goal is to reduce th
44、e firms costs below that of its competitors. The focus is on lowest-possible price with acceptable quality.Some of the unique cost drivers that managers can manipulate are the cost of input factors, economies of scale, and learning- and experience-curve effects.No matter how low the price, if there
45、is no acceptable value proposition, the product or service will not sell.,Take-Away Concepts (contd),6-40,Take-Away Concepts (contd),LO 6-4 Assess the benefits and risks of cost-leadership and differentiation business strategies vis-vis the five forces that shape competition. The five forces model h
46、elps managers use generic business strategies to protect themselves against the industry forces that drive down profitability.Differentiation and cost-leadership strategies allow firms to carve out strong strategic positions, not only to protect themselves against the five forces, but also to benefi
47、t from them in their quest for competitive advantage.Exhibit 6.7 lists benefits and risks of each business strategy.,6-41,LO 6-5Explain why it is difficult to succeed at an integration strategy. A successful integration strategy requires that trade-offs between differentiation and low cost be reconc
48、iled. Integration strategy often is difficult because the two distinct strategic positions require internal value chain activities that are fundamentally different from one another. When firms fail to resolve strategic trade-offs between differentiation and cost, they end up being stuck in the middl
49、e. They then succeed at neither strategy, leading to a competitive disadvantage.LO 6-6Evaluate value and cost drivers that may allow a firm to pursue an integration strategy. To address the trade-offs between differentiation and cost leadership at the business level, managers may leverage quality, e
50、conomies of scope, innovation, and the firms structure, culture, and routines.The trade-offs between differentiation and low cost can either be addressed at the business level or at the corporate level.,Take-Away Concepts (contd),6-42,Take-Away Concepts (contd),LO 6-7Describe and evaluate the dynami
