Business Strategy

• Value-conscious buyer


  A buyer who is willing to pay more for better value long term
• 5 generic competitive advantage strategies

  1. broad low-cost
  2. broad differentiation
  3. Focused low-cost
  4. Focused differentiation
  5. Best-cost provider
• Broad Low-Cost provider strategy

  • low costs than rivals on comparable products
  • not necessarily low price
  • broad spectrum of buyers
• broad differentiation strategy

  differentiating based on attributes to attract a broad audience
• focused low cost strategy

  niche target market at lower prices
• focused differentiation

  niche target market with a customized offering that meets needs better than rivals
• Best-cost strategy

  • upscale product attributes at lower costs than rivals
  • more value for their money
  • hybrid - a blend of other 4 strategies
• The chief difference between broad differentiation & focused is

  size of buyer group the company is trying to appeal to
• Year 1 = 10%, year 2 = 15%, the increase was

  5% points, 5 points, 500 basis points, 50%, grew from 10% to 15%
• Contribution margin analysis =

  sales - variable costs
• Contribution margin does NOT account for fixed costs
• Special contract offers can be discounted significantly and still have a positive contribution margin because the cost of these sales can be assumed to exclude fixed overhead costs
• Rival markets to attack

  • market leaders
  • runner-up firms
  • Struggling enterprises
  • Small local & regional firms
• Blue Ocean Strategy


  Simultaneous pursuit of differentiation and low cost to open a new market space with no competitors
• Defensive Strategies will NOT


  grow business

  increase competitive advantage
• Defensive strategy purpose


  lower risk of being attack

  weaken impact of attack

  Induce challenges to aim efforts at rivals
• Defensive strategy forms

  1. block challengers
  2. signal likelihood of strong retaliation
• Offensive strategy


  When a company spots opportunities to gain profitable market share at its rivals' expense OR when a company has no choice than to attack rival's competitive advantage
• Purpose of offensives strategies


  improve market position & performance
• Offensive strategy principles

  1. better product @ lower price
  2. leapfrogging (first with next-generation products)
  3. continuous innovation
  4. disruptive innovation to create new markets
  5. improving other company's goods
  6. hit&run or guerrilla warfare
  7. Preemptive strike
• scope of a firm


  range of internal activities & breadth of offering, extent of geographic presence, and mix of businesses
• Horizontal scope


  range of product & service segments that a firms serves
• Vertical scope


  extent to which the firm engages in various activities that make up the industry's value chain
• Horizontal mergers combine...

  2+ firms within the same market (usually under new name)
• Horizontal acquisitions 


  one firm purchases the operations from another firm
• Horizontal M&A benefits

  • improved effeciency
  • quick access to new products & geography
  • Increased bargaining power
  • Reducing rivalry
  • enhanced flexibility
  • Dynamic capabilities
• Horizontal M&A fails because of

  1. strategic issues
  2. organization issues
• Federal Trade Organization (FTC) & DOJ role


  ensure no monopoly
• Vertical integration


  when a business increases the scope of what they do
• vertical integration firm


  participates in multiple stages of the supply chain
• Vertical backward integration involves entry into activities previously performed by suppliers or other enterprises earlier in the value chain
• Vertical forward integration


  entry into value chain system closer to the end user
• vertical integration disadvantages

  • increased risk
  • slow adoption to new methods
  • less flexibility to shift with preferences
  • unable to realize economies of scale
  • capacity-matching problems
  • need to develop new resources & capabilities
• What does vertical integration not take into account?

  hidden factory knowledge & relationships
• The worst suppliers are often internal suppliers
• Outsourcing


  farming out value chain activities
• 2 types of partnerships

  1. strategic alliance
  2. joint venture
• Strategic alliance partnership


  formal agreement between 2+ companies in which they agree to work cooperatively toward a common objective
• Joint Venture partnership


  establishment of independent corporate entity that the partners own and control jointly, sharing revenues & expenses
• Strategic offensives should, as a general rule, be based on


  exploiting a company’s strongest competitive assets - its most valuable resources and capabilities