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Chapter 4

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  1. Chapter 4 Business Level Strategy Pages 96 - 125

  2. Business Level Strategy How are we going to compete in our industry/segment? Improving the firm’s competitive position Competitive advantages are the single most dependable contributor to above-average profitability

  3. How do these Firms Compete?

  4. How do these Firms Compete?

  5. How do these Firms Compete?

  6. How do these Firms Compete?

  7. Porter’s Generic Strategies • Two fundamental issues • Competitive advantage - low cost vs. uniqueness • Competitive Scope- broad based vs. narrow • Pursuit of the generic strategies provides protection from each of the five forces

  8. Porter’s Generic Strategies Low Cost Competitive Advantage Uniqueness

  9. Porter’s Generic Strategies Narrow Broad Competitive Scope

  10. Porter’s Generic Strategies Focused Low-Cost Overall Low-Cost Low Cost Competitive Advantage Broad Differentiation Focused Differentiation Uniqueness Narrow Broad Competitive Scope

  11. Porter’s Generic Strategies NOT one of Porter’s Generic Strategies Low Cost Integrated Low Cost/ Differentiation Competitive Advantage Uniqueness Narrow Broad Competitive Scope

  12. Porter’s Generic Strategies WalMart Domino’s Low Cost Competitive Advantage Uniqueness Narrow Broad Competitive Scope

  13. Porter’s Generic Strategies WalMart Domino’s Grocery Outlet Little Caesar’s Low Cost Competitive Advantage Uniqueness Narrow Broad Competitive Scope

  14. Porter’s Generic Strategies WalMart Dominos’s Big Lots Lil Caesar’s Low Cost Competitive Advantage Target Papa John’s Uniqueness Narrow Broad Competitive Scope

  15. Porter’s Generic Strategies WalMart Domino’s Big Lots Little Caesar’s Low Cost Competitive Advantage Target Papa John’s Nordstrom Papa Murphy’s Uniqueness Narrow Broad Competitive Scope

  16. Differentiation • Offer attributes that customers want, and are willing to pay for. Leads to premium price, higher volume, loyalty • Maintaining uniqueness can be a challenge • Kodak, Wrigley’s, Campbell’s, Coca-Cola, Gillette, Del Monte, and Nabisco all leaders since 1923 • Marginal revenue must exceed the costs of differentiation PERCEIVED VALUE versus INCREMENTAL COSTS

  17. Differentiation (cont.) • What firms pursue differentiation? • How or on what basis do they achieve differentiation?

  18. Starbuck’s Differentiation • 4 Tablespoons of $10 bag = 40 cents • Three cups • Double-Tall Latte = $3.22 • Double Shot Espresso = $1.85 • $3.22 - $1.85 = $1.37 for steamed milk • 20 seconds to steam milk • $1.37 * 3 * 60 = $246 a hour to steam milk • Customers “allow” Starbucks to draw interest in their smart-cards. • Millions of dollars annually on the float • “You are one of us” • “Collectible” • Pretax profit margins of 10.5%

  19. Differentiation (cont.) • Signalling important when: • nature of differentiation difficult to quantify • first-time purchase – • re-purchase infrequent • buyers unsophisticated

  20. To introduce his beer, Coors often gave free sample to gold miners.

  21. ..because you can’t sell beer to minors.

  22. Differentiation (cont.) • Risky when: • quick imitation • no value in uniqueness • over differentiation • cell phones • premium price • costs too high • poorly understood/changing customer needs • Minivan, FAO Schwartz • costs/price become more important than uniqueness • unwillingness to offer true differentiation

  23. Can you differentiate……?

  24. Can you differentiate…..? • Salt?

  25. Can you differentiate…..? • Deodorant

  26. Strong enough for a man, …. But made for a woman

  27. Ph balanced too?????

  28. Can you differentiate…..? • Water

  29. Evian spelled backwards - naïve • Coincidence? I think not…..

  30. Problems with P&G’s Differentiation Strategy

  31. How has P&G responded? Introduction of new, higher margined products like battery powered toothbrush and white strips Introduction of “Rejuvenating Effects,” a toothpaste for women marketed as a beauty product Using Emeril Lagasse to hawk their citrus, cinnamon, and herbal mint toothpastes

  32. How can Differentiation protect against…? Starbuck’s $1.80 New Entrants Price Profit Costs

  33. How can Differentiation protect against…? Starbuck’s $1.80 New Entrants Joe’s Coffee Assume Equal Costs

  34. Starbuck’s $1.80 Joe’s Coffee 99 cents How can Differentiation protect against…? New Entrants

  35. How can Differentiation protect against…? Starbuck’s $1.80 New Entrants Joe’s Coffee 99 cents Extra Profits

  36. Starbuck’s $1.80 Joe’s Coffee 99 cents How can Differentiation protect against…? Rivals

  37. How can Differentiation protect against…? Starbuck’s $1.80 Joe’s Coffee 99 cents Advertising & Promotions drive costs UP

  38. How can Differentiation protect against…? Starbuck’s $1.80 $1.70 Joe’s Coffee 99 89 cents Discounts and sales drive prices DOWN

  39. How can Differentiation protect against…? Starbuck’s $1.80 Substitutes

  40. How can Differentiation protect against…? Starbuck’s $1.80 There is no substitute for the truly differentiated product

  41. How can Differentiation protect against…? Power of Buyers - How do powerful buyer’s leverage their power? Lower Prices, Higher Quality

  42. Starbuck’s $1.80 $1.70 Joe’s Coffee 99 89 cents How can Differentiation protect against…? Lower Prices Raise Quality

  43. How can Differentiation protect against…? Power of Suppliers - How do powerful suppliers leverage their power? Drive up costs

  44. Starbuck’s $1.70 Joe’s Coffee 89 cents How can Differentiation protect against…? Raise Costs