KEYTERMS

1.Business Level Strategy- is an integrated and coordinated set of commitments and actions the firm
uses to gain a competitive advantage by exploiting core competencies in specific product market.

2.Cost Leadership Strategy- is an integrated set of actions taken to produce goods or services with
features that are acceptable to costumers at the lowest cost,relative to that of competitors

3.Differentiation Strategy-is an integrated set of action taken to produce goods or services (at an
acceptable cost)that costumers perceive as being different in ways that are important to them.

4.Focus Strategy-is an integrated set of actions taken to produce goods or services that serve needs of
particular competitive segment.

5.Integrated cost leadership /differentiation strategy -Involves engaging is primary value chain activities
and support function that allow firm to simultaneously pursue low cost and differentiation.

6.Market segmentation-is a process used to cluster people with similar needs into individual and
identifiable groups.

7.Total quality management(TQM)-is a managerial process that emphasizes an organization's

commitment to the costumer and to continous improvement of all processes through problem solving
based on empowerment of employees.

REVIEW QUESTIONS

1. What is a business-level strategy?

Business-level strategy is an integrated and coordinated set of commitments and actions the firm uses
to gain a competitive advantage by exploiting core competencies in specific product markets.

2. What is the relationship between a firm’s customers and its business-level strategy in terms of
who, what, and how? Why is this relationship important?

Customers are the foundation of successful business-level strategies and should never be taken for
granted. Who: Determining the Customers to Serve, deciding who the target customer is that the firm
intends to serve with its business-level strategy is an important decision. What: Determining Which
Customer Needs to Satisfy, after the firm decides who it will serve, it must identify the targeted
customer groups’ needs that its goods or services can satisfy. How: Determining Core Competencies
Necessary to Satisfy Customer Needs, after deciding who the firm will serve and the specific needs of
those customers, the firm is prepared to determine how to use its capabilities to develop products that
can satisfy the needs of its target customers.
3. What are the differences among the cost leadership, differentiation, focused cost leadership,
focused differentiation, and integrated cost leadership/differentiation business-level strategies?

Cost Leadership Strategy is an integrated set of actions taken to produce goods or services with features
that are acceptable to customers at the lowest cost, relative to that of competitors.

Differentiation Strategy is an integrated set of actions taken to produce goods or services (at an
acceptable cost) that customers perceive as being different in ways that are important to them.

Focus Differentiation Strategy firms must be able to complete various primary value-chain activities and
support functions in a completely superior manner.

Integrated Cost Leadership/Differentiation Strategy involves engaging in primary value-chain activities

and support functions that allow a firm to simultaneously pursue low cost and differentiation.

4. How can each of the business-level strategies be used to position the firm relative to the five
forces of competition in a way that helps the firm earn above-average returns?

Firms choose between five business-level strategies to establish and defend their desired strategic
position against competitors: cist leadership, differentiation, focused cost leadership, focused
differentiation, and integrated cost leadership/differentiation. Superior integration of activities increases
the likelihood of being able to gain an advantage over competitors and to earn above-average returns.

5. What are the specific risks associated with using each business-level strategy?

Firms find it difficult to perform primary value-chain activities and support functions in ways allow them
to produce relatively inexpensive products with levels of differentiation that create value for the target
customer.

CASE DISCUSSION QUESTIONS

1. What strategy was the new CEO at JCPenny seeking to implement given the generic strategies
found in Chapter 4?

The new CEO of JCPenny, Ron Johnson implement the Cost Leadership Strategy. The strategy
announced by Johnson entailed a remake of the JCPenny retail stores to create shops focused on
specific brands and types of goods within each store. The CEO announced the new customer-value
pricing approach that reduced prices on goods across the board by as much as 40 percent.

2. What was the result of change in strategy implemented?

These change overlooked the firm’s current customers; JCPenny began competing for customers who
normally shopped to their competitors. Unfortunately, the first year of this new strategy appeared it to
be failure.

3. Why was this strategy a disaster for JCPenny?

It seems that the new executive team at JCPenny thought that they could retain their current customer
base, while attracting new customers with the new “store-within-a-store” concept. But the former CEO
of JCPenny, Allen Questrom believes that Johnson and his executive team made a major strategic error
and was especially insensitive to the JCPenny customer base.

4. What does it mean to be “stuck in the middle” between two strategies (i.e., between low cost
and differentiation strategies)?

Being “stuck in the middle” means that the firm’s cost structure is not low enough to allow it attractively
price its products and that its products are not sufficiently differentiated to create value for the target
customer.