Strategic Choices: Business-Level Strategy

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Strategic Choices:Business-Level Strategy Strategic Management (5 ECTS) Ismo Vuorinen Principal Lecturer Autumn 201023.11.20101

Strategic Choices23.11.20102

The TOWS Matrix23.11.20103

Business-Level Strategies23.11.20104

What is aStrategic Business Area? Demand Demand potential (size, growth rate, market share)Customers Customer potential customer structure, buying motives andcriteria)Competition Structure of the competition, the competitors' objectives andstrategies, competitive position Specific resources and competences (the strategic capabilities) Organisation structure, control systems, technology,resources, know-how, management method, organisationalculture Success factors (on the basis of the previous factors)23.11.20105

What is aStrategic Business Unit?A strategic business unit (SBU)is a part of an organisation for whichthere is a distinct external market forgoods or services that is differentfrom another SBU Each SBU has its own business strategy23.11.20106

The Strategy Clock23.11.20107

Route 1: No Frills Strategy Low price combined with low perceivedproduct benefits focusing on price-sensitivemarket segments Commodity marketsPrice-sensitive customersHigh power, low switching costs among buyersOpportunity to avoid major competitors23.11.20108

Route 2: Low-Price Strategy Lower price than competitors while offeringsimilar product benefitsPitfalls Margin reductions Inability to reinvest23.11.20109

Route 3: Hybrid Strategy Seeks to simultaneously achievedifferentiation and low price relative tocompetitorsAdvantageous when Greater volumes can be achievedCost reductions outside differentiated activities areavailableUsed as an entry strategy23.11.201010

Route 4: DifferentiationStrategy Seeks to provide products that offer benefitsthat differ from those offered by competitorsDependent upon Identifying and understanding strategiccustomer needs Identifying key competitors’ strategies23.11.201011

Route 5: FocusedDifferentiation Seeks to provide high perceived product benefits,justifying price premiumsKey issues Choice between focus strategy and broaddifferentiation Tensions between focus strategy and otherstrategies Market changes23.11.201012

Routes 6-8: Failure Strategies 6 – Increase prices without increasingservice/product benefits7 – Reduction in product/service benefitswith increase in relative price8 – Reduction in benefits whilst maintainingprice23.11.201013

Sustaining 201014

Achieving Low PricesOperate with lowermarginsDevelop a uniquecost structureCreate efficiency inorganisationalcapabilitiesFocus on marketsegments withlow expectations23.11.201015

Ryanair23.11.201016

Dangers of Low PriceStrategies Competitors might follow suitCustomers associate low price with lowbenefitsCost reductions may result in inability topursue differentiation strategy23.11.201017

Ways of attempting to SustainAdvantage through DifferentiationCreate difficultiesof imitationCreate a situationof imperfect mobilityEstablish a lowercost position23.11.201018

Establishing Strategic Lock-InSize or gcommitmentInsistence onpreservationof position23.11.201019

Competitive Strategiesin Hypercompetitive Conditions23.11.201020

Competition and Collaboration23.11.201021

Business-Level Strategies 23.11.2010 4. What is a Strategic Business Area? Demand Demand potential (size, growth rate, market share) Customers Customer potential customer structure, buying motives and criteria) Competition Structure of the competition, the competitors' objectives and strategies, competitive position Specific resources and competences (the strategic capabilities) Organisation .

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