Chapter05

Part 2:Strategic Choices

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The Focus of Part 2: Strategic Choices (1)

How an organisation positions itself in relation to competitors in terms of its overall competitive strategy

The scope and diversity of an organisation’s products and therefore the nature of its corporate portfolio and how that portfolio is managed

The geographic scope of the organisation and the bases of its international strategy

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The Focus of Part 2: Strategic Choices (2)

The extent to which and how it seeks to foster innovation and entrepreneurial endeavour

Ways in which it might pursue strategic options in terms of organic development, acquisitions or joint ventures

The criteria and tools by which these choices might be evaluated

Strategic Choices5: Business-Level Strategy

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Learning Outcomes (1)

Identify strategic business units (SBUs) in organisations

Explain bases of achieving competitive advantage in terms of ‘routes’ on the strategy clock

Assess the extent to which these are likely to provide sustainable competitive advantage

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Learning Outcomes (2)

Identify strategies suited to hyper-competitive conditions

Explain the relationship between competition and collaboration

Employ principles of game theory in relation to competitive strategy

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Exhibit 6.1 Business-Level Strategies

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What is a Strategic Business Unit?

A strategic business unit (SBU) is a part of an organisation for which there is a distinct external

market for goods or services that is different from another SBU.

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Exhibit 6.2 The Strategy Clock

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Route 1: No Frills Strategy

Low price combined with low perceived product benefits focusing on price-sensitive market segments

Commodity markets

Price-sensitive customers

High power, low switching costs among buyers

Opportunity to avoid major competitors

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EasyJet’s No Frills Strategy (1)

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EasyJet’s No Frills Strategy (2)

Upon what are the bases for easyJet’s ‘no frills’ strategy?

How easy would it be for larger airlines such as BA to imitate the strategy?

On what bases could other low-price airlines compete with easyJet?

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Route 2: Low-Price Strategy

Lower price than competitors while offering similar product benefits

Pitfalls

Margin reductions

Inability to reinvest

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Morrison’s Low Price Strategy

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Route 3: Hybrid Strategy

Seeks to simultaneously achieve differentiation and low price relative to competitors

Advantageous when

Greater volumes can be achieved

Cost reductions outside differentiated activities are available

Used as an entry strategy

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Route 4: Differentiation Strategy

Seeks to provide products that offer benefits that differ from those offered by competitors

Dependent upon

Identifying and understanding strategic customer needs

Identifying key competitors’ strategies

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Route 5: Focused Differentiation

Seeks to provide high perceived product benefits, justifying price premiums

Key issues

Choice between focus strategy and broad differentiation

Tensions between focus strategy and other strategies

Market changes

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Routes 6-8: Failure Strategies

6 – Increase prices without increasing service/product benefits

7 – Reduction in product/service benefits with increase in relative price

8 – Reduction in benefits whilst maintaining price

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Exhibit 6.3 Sustaining Competitive Advantage

Sustainablecompetitiveadvantage

Price-based strategies

Lock-in

Differentiation

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Achieving Low Prices

Operate with lowermargins

Develop a unique cost structure

Create efficiency inorganisational

capabilities

Focus on market segments with

low expectations

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Ryanair

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Dangers of Low Price Strategies

Competitors might follow suit

Customers associate low price with low benefits

Cost reductions may result in inability to pursue differentiation strategy

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Ways of attempting to Sustain Advantage through Differentiation

Create difficultiesof imitation

Create a situation of imperfect mobility

Establish a lowercost position

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Yellow Tail

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Establishing Strategic Lock-In

Size or marketdominance

First-moverdominance

Self-reinforcingcommitment

Insistence on preservation

of position

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Exhibit 6.5 Competitive Strategies in Hypercompetitive Conditions

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Exhibit 6.6 Competition and Collaboration

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What is Game Theory?

Game theory is concerned with the interrelationships between the competitive moves of a set of

competitors.

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Exhibit 6.7 A Prisoner’s Dilemma

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Case Example: Madonna

Describe and explain Madonna’s competitive strategy.

Why has she experienced sustained success?