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Technology & Organisational Change. Business Level Strategy Week 4. Outline. Customers, Who, What and How? Types of business level strategy Cost leadership Differentiation Focused cost leadership Focused Differentiation Cost leadership\differentiation. Strategic Competitiveness.

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Technology organisational change

Technology & Organisational Change

Business Level Strategy

Week 4


  • Customers, Who, What and How?

  • Types of business level strategy

    • Cost leadership

    • Differentiation

    • Focused cost leadership

    • Focused Differentiation

    • Cost leadership\differentiation

Strategic competitiveness
Strategic Competitiveness

To achieve strategic competitiveness, firms must:

  • Identify who their customers are

  • Determine customer needs/preferences

  • Focus on satisfying the needs of some group of customers

  • Select a strategy that enables them to satisfy customer needs

Internet competitive advantage
Internet Competitive Advantage

In the Internet age, firms can maintain competitive

advantage by:

  • Thinking continuously about accessing & connecting with customers (reach)

  • Maintaining info with depth & detail for and from customers (richness)

  • Determining how to build relationships with customers (relationship)

Determining which customers to serve
Determining which customers to serve

  • Need to identify customers on basis of needs or preferences

  • Firm must determine whether differences in needs/preferences are significant

  • If not, can offer a standardised product.

Basis for customer segmentation
Basis for Customer Segmentation

  • Customer Markets

    • Demographic factors

    • Socio-economic factors

    • Geographic factors

    • Psychological factors

    • Consumption patterns

    • Perceptual factors

Basis for customer segmentation cont
Basis for Customer Segmentation (cont.)

  • Industrial Markets

    • End-use segments

    • Product segments

    • Geographic segments

    • Common buying factor segments

    • Customer Size segments

Standardised product
Standardised Product

When would a firm offer a standardised product?

  • When it can’t easily be customised or differentiated

  • Or when firm’s core competencies are best suited to producing standardised products.

  • Typically offer them at lowest competitive price as they follow a cost leadership strategy.

Increasing segmentation of markets
Increasing segmentation of markets

  • Availability of sophisticated info processing technologies allows firms to identify unique bundles of customer characteristics and needs

  • Competitors are becoming adept at identifying small but strategically relevant differences in customer needs

  • Trend towards smaller and smaller segments

Determining what needs to satisfy
Determining what needs to satisfy

  • Customers want needs satisfied and they want value

  • Need to identify key customer groups, needs and preferences.

  • Thus customer knowledge must be a priority for top level managers since they determine policy, technology etc

Customer knowledge
Customer knowledge

  • Becomes more important as firms attempt to perpetuate or sustain competitive advantage. By listening to customers, firms can correctly anticipate their future needs and create product innovations ahead of competitors- first mover advantage

Core competencies
Core Competencies

Determining core Competencies to satisfy

customer needs

  • Need to decide how to bundle resources & core competencies to satisfy customer needs to by implementing value creating strategies

Core competencies1
Core Competencies

This means that:

  • Firms must improve their ability to convert innovation and new technologies into commercial products

  • New products should be based on core competencies or technology

  • New products must meet present or future needs

Generic strategies
Generic Strategies

  • Now look at 4 generic strategies, and how they relate to the 5 competitive forces, the applicability of the value chain, risks associated with each

  • A firms position in an industry relative to competitors and to the 5 forces of competition

    • Rivalry with existing competitors

    • Bargaining power of suppliers

    • Bargaining power of buyers

    • Potential entrants

    • Product substitutes

Generic Business-Level Strategies

Source of Competitive Advantage










Breadth of Competitive Scope

Focused Differen-


Focused Low Cost




Generic strategy cost leadership
Generic strategy: Cost-leadership

  • Offers relatively standardised product – minimum differentiation at lowest competitive price

  • Reducing price is not necessarily a cost leadership strategy- need to give consumer value- includes quality

Cost reduction strategies
Cost reduction strategies

  • Building efficient scale facilities

  • Tight control of production & overhead costs

  • Minimising costs of sales, R&D and service

  • State of the art manufacturing technologies

Critical focus
Critical focus

  • Efficiency

  • Cost reduction

  • Still can’t ignore sources of differentiation that customers value- e.g. styling, minimal levels of service, quality

Strategy 1 cost leadership
Strategy 1:Cost Leadership

  • Even when competitive forces are strong, a firm that has cost leadership can still earn above average profits.

Rivalry with existing competitors
Rivalry with existing competitors

  • Achieving the lowest cost position means that competitors will hesitate to compete on basis of price because in a price war, the low cost firm will continue to earn profits after competitors have competed away their profits

Bargaining power of buyers
Bargaining power of buyers

  • Achieving low cost position provides some protection against powerful customers who attempt to drive down prices

  • If customers drive prices below the cost of the next most efficient firm, the firm might choose to exit the market, leaving the low cost firm in a monopoly position

Bargaining power of suppliers
Bargaining power of suppliers

  • Cost leadership strategy enables a firm to absorb greater amount of cost increases fro powerful suppliers before it must raise prices

  • If has dominant market share, might be able to force suppliers to lower prices

Potential entrants
Potential Entrants

  • Firms generally must produce & sell in large volumes to have cost leadership- this acts as a barrier to entry why?

Product substitutes
Product substitutes

  • To retain customers the low cost leader can more easily reduce prices to maintain the price-value relationship and maintain customers

Cost leadership
Cost Leadership

Competitive risks of the cost leadership strategy:

  • Tech innovations by competitors could eliminate advantage

  • Over focus on efficiency might cause lack of focus on consumer preferences

  • Competitors might imitate low cost leaders value chain configuration

Strategy 2 differentiation
Strategy 2: Differentiation

  • Value is provided through the unique features of the product

  • Can charge premium price

  • Price charged must exceed the cost of the differentiation

  • Focus on product innovation and product features

Means of differentiation
Means of differentiation

  • Superior quality

  • Unusual or unique features

  • More responsive customer service

  • Rapid product innovation

  • Advanced technological features

  • Engineering design

  • Additional features

  • Image of prestige

Achieving above average returns
Achieving above average returns

  • Even when competitive forces are strong

Rivalry with existing competitors1
Rivalry with existing competitors

  • Brand loyalty means that customers will be less sensitive to price increases. As long as the firm satisfies the differential needs of customers it may be insulated from price base competition

Bargaining power of buyers1
Bargaining power of buyers

  • Product considered unique

  • Reduces customer sensitivity to price

Bargaining power of suppliers1
Bargaining power of suppliers

  • Differentiator can absorb a greater level of cost increase from powerful suppliers through its higher margins

Potential entrants1
Potential entrants

  • Principal barrier is customers loyalty

Product substitutes1
Product substitutes

  • Brand loyalty insulates differentiated products

Differentiation strategy
Differentiation Strategy

Competitive risks of differentiation strategy:

  • Customers may decide the cost of uniqueness is too high

  • Firms means of differentiation no longer of value to customers

  • Customer learning may influence customer perception of value

  • counterfeiting

Strategy 3 focus
Strategy 3: focus

  • Firms focus on small segments or niches

  • Why follow a focus strategy?

    • Able to serve niche more effectively

    • Needs are so special that industry wide competitors choose not to meet them

    • Can be based on cost leadership or differentiation

Focused cost leadership strategy
Focused cost leadership strategy

  • Generally targets the smallest buyers in the industry

Focused differentiation strategy
Focused differentiation strategy

  • Customised products for small segments

  • Successful when quantities involved are too small for industry wide competitors, or when the degree of customisation requested is beyond capabilities of the industry wide differentiator

Competitive risks of focus strategies
Competitive risks of focus strategies

  • Competitors may successfully focus on an even smaller segment of the market

  • Industry-wide competitor may recognise the attractiveness of the segment

  • Preferences of the narrow segment may become similar to those of the wider market

Integrated cost leadership differentiation
Integrated cost-leadership/differentiation

  • Integrating generic strategies may enable them to:

    • Adapt quickly to environmental change

    • Learn new skills and technology

    • More effectively leverage core competencies across business units and product lines

    • Produce differentiated products at a relatively low cost

Integrated cost leadership differentiation1
Integrated cost leadership/differentiation


  • Differentiation enables firm to charge premium price

  • Cost leadership allows firm to charge lowest price

Integrated cost leadership differentiation2
Integrated cost leadership/differentiation

Products from integrated cost

leadership/differentiation strategy are:

  • Less differentiated than if firm pursued just a differentiation strategy and

  • Costs not as low as if pursued cost leadership strategy

Integrated cost leadership differentiation3
Integrated cost leadership/differentiation

To overcome Competitive Risks must be able to:

  • Focus consistently on reducing costs

  • Add differentiated features that customers value and for which they are willing to pay a higher price

  • Avoid becoming ‘stuck in the middle’ by failing to consistently pay attention to the competitive requirements of either or both generic strategies.


  • Increased rivalry

  • Model of competitive dynamics & rivalry

  • Likelihood of attack

  • Likelihood of response

  • Firms abilities to take action and respond

  • Outcomes of inter-firm rivalry

New ways of competing
New ways of competing

  • Bring new products to the market more quickly

  • Use of new technology

  • Diversifying product line

  • Shifting product emphasis

  • Consolidation of industries

  • Combining on-line selling with traditional

Changing competitive environment
Changing Competitive Environment

Reasons for changing competitive environment

  • Attention on global market

  • Advances in ICTs- more info, faster decision making

  • Innovation

  • Cooperation between former competitors in development of new technology or formation of strategic alliances

Competitive dynamics1
Competitive dynamics

  • When one firm takes action, so do others

Model of competitive dynamics rivalry
Model of competitive dynamics & rivalry

  • Competitive rivalry exists when firms jockey with one another in pursuit of advantageous market position

  • Exists because of competitive asymmetry- i.e. firms differ in terms of resources, capabilities, core competencies & the opportunities and threats in their environments

  • Competition results in mutual interdependence

A firm’s

strategic conduct is dynamic in nature

Actions taken by one firm elicit responses from competitors

Competitive responses lead to additional actions from the firm that acted originally

Competitive Dynamics

Actions and responses shape the competitive positions of each firm’s business-level strategy

Model of inter firm rivalry
Model of Inter-firm Rivalry

  • Awareness- whether the attacking/responding firm is aware of a potential attacker or respondent.

  • Motivation- incentives that firm has to attack/respond when attacked

  • Market commonality- extent to which firms compete in same market

Multipoint competition
Multipoint competition

  • When firms overlap in several markets (geographic or product)

  • High levels of commonality reduce the likelihood of competitive interaction- see Strategic Focus- airlines p163

Resource similarity
Resource similarity

  • Intensity of competition often based on potential for response- attackers are generally not motivated to target a rival that is likely to retaliate

  • Firms with dissimilar resources are more likely to attack

Likelihood of attack
Likelihood of attack

  • The model tells us that the firm’s motivation and awareness are developed from competitor analysis of market commonality and resource dissimilarity.

  • First mover

    • Take an initial competitive action

    • Have the resources, capabilities & core competencies that to Gain competitive advantage through innovative and entrepreneurial actions

First mover
First Mover

First mover hopes to:

  • Gain sustainable competitive advantage

  • Earn above average returns until competitors respond effectively

  • Gain customer loyalty

First mover1
First Mover

Disadvantage of first mover

  • Inability to predict success of the action

  • Second movers through imitation can avoid high development costs

Second movers
Second Movers

  • Firms that respond to first movers competitive action

  • Quick response may allow second mover to:

    • Capture some of the initial customers and gain a degree of brand loyalty

    • Avoid some of the risks of the first mover

    • Learn from mistakes and successes

    • Avoid market development costs

Late movers
Late movers

  • Respond to competitive action after considerable time

  • Performance generally suffers





Model of Interfirm Rivalry:

Likelihood of Attack and Response

Drivers of Competitive Behaviour


Ability for Action and Response

Interfirm Rivalry:

Attack & Response


Market Types


Slow, Standard


Relative Size

or Fast Cycle

Likelihood of Attack


First Mover Incentives





Likelihood of Response



Type of Competitive


Competitor Analysis



Actor’s Reputation


Dependence on the




Resource Availability





or Market-Power


Likelihood of response
Likelihood of response

  • Depends on

    • Type of action

    • Reputation of competitor taking the action

    • Competitors resource availability

Firm s ability to take action and respond
Firm’s ability to take action and respond

  • Relative size of the firm within market

  • Speed of competitive actions and responses

  • Extent of innovation by firms in the industry

  • Quality of firms products

Outcomes of inter firm rivalry
Outcomes of inter-firm rivalry

  • Slow cycle markets-strongly shielded resource positions (monopoly)

  • Standard cycle- more closely associated with Porter-oligopoly

  • Fast cycle- largely impossible to achieve sustained competitive advantage

Competitive dynamics and industry evolution outcomes

Key Task

Key Task

Key Task

Key Task

Firm Resource & Market Strength





Open Niches

(Blind Spots) & Competitive Uncertainty

Exploiting Factors of Production

Exploiting Market Position









Emerging Stage

Growth Stage

Mature Stage

Elaboration Stage