Chapter 5: Business-Level Strategy
 Too high a price premium
Generic Strategies (F-O-D)
- Presented by Michael Porter
- Basic type of business level strategies based
on breadth of target market and type of
competitive advantage
a. Focus Strategy
- Based on the choice of narrow competitive
scope within an industry
1. Cost Focus- firm strives to create a cost
advantage; difference in cost behavior
2. Differentiation Focus- seeks to
differentiate in its target market; special
needs of buyer in other segments
- Potential Pitfalls
 Cost advantages may erode within
the narrow segment
 Product and service offerings that are
highly focused are subject to
competition from new entrants and
from imitation
 Focusers can become too focused to
satisfy buyer needs
b. Overall Cost Leadership
- Appeal to the industrywide market using a
competitive advantage based on low cost
- Experience Curve: factor that is central to an
overall cost leadership strategy
: decline in the unit costs of
production as cumulative output
increases
: developed by Boston
Consulting Group
- To generate above-average performance a
firm must attain
competitive parity
 A firm’s achievement of
similarity, or “on par”, with
competitors with respect to
the generic strategies
- Potential Pitfalls
 Too much focus on one or few value
chain activities
 Increase in the cost of the inputs on
which the advantage is based
 Strategy that can be imitated too
easily
 Lack of parity on differentiation
 Reduced Flexibility
 Obsolescence of the basis of cost
advantage
c. Differentiation Strategy
- Based on creating differences in the firm’s
product or service offering by creating
something that is perceived industrywide as
unique and valued by customers
- Potential Pitfalls
 Uniqueness that is not valuable
 Too much differentiation
 Differentiation that is easily imitated
 Dilution of brand identification through
product-line extensions
 Perceptions of differentiation that vary
between buyers and sellers
Combination Strategies: Overall Low Cost and
Differentiation
- Firm’s integrations of various strategies to
provide multiple types of value to customers
- GOAL: provide unique value to customers in
an efficient manner
FOUR APPROACHES
1. Adopting Automated and Flexible
Manufacturing Systems
Mass Communication- firm’s ability to
manufacture unique products in small
quantities at low cost
2. Using Data analytics
Big Bang- collecting and analyzing data
on their customers
3. Exploiting the profit pool concept
Profit pool- total profits in an industry at
all points along the industry’s value chain
4. Coordinating the extended value chain
- Potential Pitfalls
 Failing to attain both strategies and
possibly ending up neither, leaving
the firm “stuck in the middle”
 Underestimating challenges and
expenses associate with coordinating
value-creating activities in the
extended value chain
 Miscalculating sources of revenue
and profit pools in the firm’s industry
INDUSTRY LIFE-CYCLE STAGES: Strategic
Implications
- Refers to the stages of introduction, growth,
maturity, and decline that occur over the life
on an industry
INTRODUCTION STAGE
- First stage of the life cycle
- Characteristics:
 Products are unfamiliar to the
customer
 Poorly defined market segments
 Unspecified product features
 Low sales growth
 Rapid technological change
 Operating losses
 Need for financial support
- Challenges:
 Developing the product and finding a
way to get users to try it
 Generating enough exposure
 - Reversing performance decline and
GROWTH STAGE reinvigorating growth toward profitability
- Second stage of the life cycle - May occur at any stage in the life cycle but is
- Characteristics: most likely to occur during maturity or decline
 Strong increases in sales
 Growing competition THREE STRATEGIES
 Developing brand recognition a. Asset and Cost Surgery
 Need for financing complementary b. Selective product and market pruning
value-chain activities c. Piecemeal productivity improvements

MATURITY STAGE
- Third stage in the life cycle
- Characteristics:
 Slowing demand growth
 Saturated markets
 Direct competition
 Price competition
 Strategic emphasis on efficient
operations
- Two positioning strategies to affect customer
mental shifts are
 Reverse Positioning- break in the
industry tendency to continuously
augment products by offering
products with fewer product attributes
and lower prices
 Breakaway Positioning- break in the
industry tendency to incrementally
improve products along specific
dimensions by offering products that
are still in the industry but are
perceived by customers as being
different

DECLINE STAGE
- Fourth stage in the life cycle
- Characteristics:
 Falling sales and profits
 Increasing price competition
 Industry consolidation
- Firm’s strategic options become dependent on
the actions of rivals

FOUR BASIC STRATEGIES

a. Maintaining: keeping a product going
without significantly reducing marketing
support, technological development and
other investments, in hopes that rivals will
soon exit the market
b. Harvesting: obtaining as much profit as
possible in the short to medium term and
requires that costs be reduced quickly
c. Exiting the Market: dropping the product
from a firm’s portfolio
d. Consolidation: firm’s acquiring or merging
with other firms in an industry in order to
enhance market power and gain valuable
assets

TURNAROUND STRATEGIES