Chapter 4 – Global Business-Level

Strategies – Choosing Competitive

Strategies in a Single Industry

McGraw-Hill/Irwin Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.
 Chapter Roadmap
 Low-Cost Provider Strategies
 Broad Differentiation Strategies
 Focused (or Market Niche) Strategies
 Best-Cost Provider Strategies

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The Five Global Business-Level Strategies

5-3
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 The Five Global Business-Level
Strategies
Low-Cost Striving to achieve lower overall costs than rivals on
Provider products that attract a broad spectrum of buyers

Differentiating the firm’s product offering from

Broad
rivals’ with attributes that appeal to a broad
Differentiation spectrum of buyers

Concentrating on a narrow price-sensitive buyer

Focused segment and on costs to offer a lower-priced
Low-Cost product

Concentrating on a narrow buyer segment by

Focused
meeting specific tastes and requirements of niche
Differentiation members

Giving customers more value for the money by

Best-Cost offering upscale product attributes at a lower cost
Provider than rivals
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Low-Cost Provider Strategies
Keys to Success
 Make achievement of meaningful
lower costs than rivals the theme
of firm’s strategy
 Include features and services in product
offering that buyers consider essential
 Find approaches to achieve a cost
advantage in ways difficult for rivals to
copy or match
Low-cost leadership means low overall costs, not
just low manufacturing or production costs!
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Translating a Low-Cost Advantage into
Higher Profits: Two Options

Option 1: Use lower-cost edge to

under-price competitors and attract
price-sensitive buyers in enough
numbers to increase total profits

Option 2: Maintain present price, be

content with present market share,
and use lower-cost edge to earn a
higher profit margin on each unit
sold, thereby increasing total profits
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The Two Approaches for Achieving
a Cost Advantage

Approach 1
Performing value chain activities
more cost effectively than rivals

Control
Approach 2 costs!
By-pass
Revamp value chain to eliminate costs!
or bypass some cost-producing
activities
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 Approach 1: The Keys to
Drive Down Company Costs

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 Approach 2: Revamping
the Value Chain to Lower Costs
 Selling direct to customers and reducing the
need for distributors and dealers (own direct
force, using website)
 Streamlining operations by eliminating low-
value-added or unnecessary work steps and
activities
 Having suppliers locate their plants or
warehouses close to the firm’s own facilities

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When Does a Low-Cost Strategy
Work Best?
 Price competition among sellers is very strong
 Product is standardized or readily available
from many sellers
 Difficult to achieve product differentiation that
have value to buyers
 Most buyers use product in same ways
 Buyers incur low switching costs

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Pitfalls of Low-Cost Strategies
 Being overly aggressive in cutting price may
not result in higher profits
 Low cost methods are easily
copied by rivals
 Becoming too fixated on
reducing costs and ignoring
Buyer interest in additional features
Declining buyer sensitivity to price
Changes in how buyers use the product
 It may be costly for a firm to apply new cost-
saving technology
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 Differentiation Strategies

Objective
 Incorporate differentiating features that
cause buyers to prefer firm’s product or
service over brands of rivals
Keys to Success
 Find ways to differentiate that create
value for buyers and are not easily
matched or cheaply copied by rivals
 Keeping the cost of achieving differentiation
below the higher price that can be charged
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Benefits of Successful Differentiation

A product with unique, appealing attributes

allows a firm to:

 Command a premium price for its

product
Which
 Increase unit sales hat is unique?

 Build brand loyalty of

buyers

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 Sustaining Differentiation:
Keys to Creating Advantage

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Revamping the Value Chain System to
Increase Differentiation

Coordinating with
channel allies to
enhance customer
perceptions of value

Approaches
to enhancing
differentiation

Coordinating with
suppliers to better
address customer
needs

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 How to Achieve a
Differentiation-Based Advantage

Route 1
Incorporate product features/attributes that
lower buyer’s overall costs of using product
Route 2
Incorporate tangible features that increase
buyer satisfaction with the product
Route 3
Incorporate intangible features that enhance
buyer satisfaction in non-economic ways
Route 4
Signal the value of the product to buyers
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 When Does a Differentiation
Strategy Work Best?

 There are many ways to differentiate a

product that have value and please
customers
 Buyer needs and uses are diverse
 Few rivals are following a similar
differentiation approach
 Technological change and
product innovation are fast-paced

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Pitfalls of Differentiation Strategies

 Appealing product features are easily and

quickly copied by rivals
 Buyers see little value in unique attributes of the
product
 Overspending on efforts to differentiate the
product offering, thus eroding profitability
 Over-differentiating such that product features
exceed buyers’ needs
 Charging too high a price
premium
 No clear gaps in quality, service,
or performance features vis-à-vis
rivals’ products
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Focus (or Market Niche) Strategies

 Involve concentrated attention on a narrow

piece of the total market
Objective
Serve niche buyers better than rivals
Keys to Success
 Choose a market niche where buyers
have distinctive preferences, special
requirements, or unique needs
 Develop unique capabilities to
serve needs of target buyer segment
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Focus (or Market Niche) Strategies

Focused Strategy
Approaches

Focused
Low-Cost Focused Market
Strategy Niche Strategy

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 Focus Strategies and
Competitive Advantage

Focused low-cost strategy

 Achieve lower costs than rivals in
serving a well-defined buyer segment

Which hat is
unique?

Focused differentiation strategy

 Offer a product appealing to unique

preferences of a well-defined buyer segment

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When a Focused Low-Cost or Focused
Differentiation Strategy Is Attractive?
 Big enough to be profitable and offers good
growth potential
 Not crucial to success of industry leaders
 Costly or difficult for multi-segment
competitors to meet specialized
needs of niche members
 The industry has many different
niches and segments.
 Few other rivals are specializing in same niche
(they have little or no interest in the target segment
 Focuser can defend against challengers via
superior ability to serve niche members
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 Risks of a Focus Strategy

 Competitors will find ways to match the

focused firm’s capabilities in serving the
target niche

 Niche buyers’ preferences shift

towards product attributes desired
by majority of buyers – niche
becomes part of overall market

 Segment becomes so attractive it becomes

crowded with rivals, causing segment profits
to be splintered
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Best-Cost Provider Strategies
 Combine a strategic emphasis on low-cost
with a strategic emphasis on differentiation
 Make an upscale product at a lower cost
 Give customers more value for the money
Objectives
 Deliver superior value by meeting or exceeding
buyer expectations on product attributes and
beating their price expectations
 Be the low-cost provider of a product with good-
to-excellent product attributes, then use cost
advantage to under-price comparable brands
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 Competitive Strength of a
Best-Cost Provider Strategy
 Competitive advantage is based on the
capability to include upscale attributes at a
lower cost than rivals’ comparable products
 To achieve competitive advantage,
a company must be able to
Incorporate attractive features
at a lower cost than rivals
Manufacture a good-to-excellent quality
product at a lower cost than rivals
Develop a product that delivers good-to-excellent
performance at a lower cost than rivals
Provide attractive customer service at a lower cost
than rivals
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When a Best-Cost Provider Strategy
Works Best?

 When buyer diversity

makes product
differentiation the norm
 When many buyers are
also sensitive to price and
value
 A firm needs to position
itself near the middle of
the market

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Risk of a Best-Cost Provider Strategy

 A best-cost provider may get squeezed

between strategies of firms using low-cost
and differentiation strategies

 Low-cost leaders may be able to attract

customers away with a lower price

 High-end differentiators may

be able to steal customers away
with better product attributes

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