1.

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

2. Customers are the foundation of successful business-level strategies. Key reason firms must satisfy
customers with their business-level strategy is that returns earned from relationships with customers
are the lifeblood of all organizations. When determining a business-level strategy the firm determines
the who, what, and how. These issues, respectively, refer to the customer groups to be served, the
needs those customers have that the firm seeks to satisfy, and the core competencies the firm will use
to satisfy customers’ needs. Increasing segmentation of markets throughout the global economy creates
opportunities for firms to identify more distinctive customer needs that they can serve with one of the
business-level strategies.

3. Cost Leadership Strategy

It 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 with features that are acceptable to
customers. Effective use of the cost leadership strategy allows a firm to earn above-average returns
in spite of the presence of strong competitive forces.

Differentiation Strategy
It 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. Through the differentiation
strategy, the firm produces distinctive products for customers who value differentiated features more
than they value low cost. Firms using this strategy seek to differentiate their products from competitor's
goods on as many dimensions as possible.

Focus Strategy

It is an integrated set of actions taken to produce goods or services that serve the needs of a particular
competitive segment. Firms use a focus strategy when they utilize their core competencies to serve the
needs of a particular industry segment or niche to the exclusion of others. Firms can create value for
customers in specific and unique market segments by using the focused cost leadership strategy or the
focused differentiation strategy.

FOCUSED COST LEADERSHIP STRATEGY

A firm focuses on a niche market, adding value by leveraging value chain activities that allow value
creation through the cost leadership strategy

■ Competitive advantage: low-cost

■ Competitive scope: narrow industry segment

FOCUSED DIFFERENTIATION STRATEGY

The value chain may be analyzed to determine if a firm is able to link the activities required to create
value by using the focused differentiation strategy
■ Competitive advantage: differentiation
■ Competitive scope: narrow industry segment

Integrated cost leadership/differentiation strategy

It involves engaging in primary value-chain activities and support functions that allow a firm to
simultaneously pursue low cost and differentiation. The objective of using this strategy is to efficiently
produce products with some differentiated features. Firms that successfully use the integrated cost
leadership/differentiation strategy usually adapt quickly to new technologies and rapid changes in their
external environments.

Case study

1. The strategy that the new CEO at JcPenney was seeking to implement given the generic strategies,
was the Integrated Cost Leadership/Differentiation Strategy that involves engaging in primary value-
chain activities, and support functions that allow a firm to simultaneously pursue a low cost and
differentiation. In his new strategies, he strive to rebrand JCPenney by trying to implement the cost
leadership strategy by reducing the price of goods by around 40% rather than offering discounts as
before to aim for the value pricing approach. He's also implementing a differentiation strategy which will
be integrated with the cost leadership to convert JCPenney into a new high-end retail store.

2. The implemented strategy resulted in a sales decline that led to a net loss. The reason was that they
were only concerned with gaining more customers, particularly from their competitors, but just turned
out failing to keep their existing customers.

3. The strategy was a disaster because only about one-third of the stores had been converted to the new
approach and the rest did not adopt the new business strategy. Therefore, new stores increased their
sales while old stores’ sales declined. The company’s new market segment cannibalized its own
customers instead of satisfying them.

4. It only means that they cannot decide accordingly with the two strategies. Differentiation strategy is
used when there’s a tough competition in the market and all firms are offering similar kinds of products
and services. Low cost strategy, on the other hand is for the company to produce and deliver products of
competitive quality at lower costs. Both strategies failed in the case.

Firms that fail to perform the value-chain activities and support functions in an optimum manner
become “stuck in the middle.” Being stuck in the middle means that the firm’s cost structure is not low
enough to allow it to attractively price its products and that its products are not sufficiently
differentiated to create value for the target customer.

Firms can also become stuck in the middle when they fail to successfully implement either the cost
leadership or the differentiation strategy.