Strategic Choices: Business-Level Strategy

1. Part 2:
Strategic Choices

2. 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
Exploring Corporate Strategy 8e, © Pearson Education 2008 6-2

3. 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
Exploring Corporate Strategy 8e, © Pearson Education 2008 6-3

4. Strategic Choices
5: Business-Level Strategy

5. 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
Exploring Corporate Strategy 8e, © Pearson Education 2008 6-5

6. 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
Exploring Corporate Strategy 8e, © Pearson Education 2008 6-6

7. Exhibit 6.1 Business-Level
Strategies
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8. 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.
Exploring Corporate Strategy 8e, © Pearson Education 2008 6-8

9. Exhibit 6.2
The Strategy Clock
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10. 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
Exploring Corporate Strategy 8e, © Pearson Education 2008 6-10

11. EasyJet’s No Frills Strategy (1)
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12. 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?
Exploring Corporate Strategy 8e, © Pearson Education 2008 6-12

13. Route 2: Low-Price Strategy
Lower price than competitors while offering
similar product benefits
Pitfalls
Margin reductions
Inability to reinvest
Exploring Corporate Strategy 8e, © Pearson Education 2008 6-13

14. Morrison’s Low Price Strategy
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15. 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
Exploring Corporate Strategy 8e, © Pearson Education 2008 6-15

16. 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
Exploring Corporate Strategy 8e, © Pearson Education 2008 6-16

17. 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
Exploring Corporate Strategy 8e, © Pearson Education 2008 6-17

18. 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
Exploring Corporate Strategy 8e, © Pearson Education 2008 6-18

19. Exhibit 6.3 Sustaining
Competitive Advantage
Sustainable
competitive
advantage
Price-based
strategies
Lock-in
Differentiation
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20. Achieving Low Prices
Operate with lower
margins
Develop a unique
cost structure
Create efficiency in
organisational
capabilities
Focus on market
segments with
low expectations
Exploring Corporate Strategy 8e, © Pearson Education 2008 6-20

21. Ryanair
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22. 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
Exploring Corporate Strategy 8e, © Pearson Education 2008 6-22

23. Ways of attempting to Sustain
Advantage through Differentiation
Create difficulties
of imitation
Create a situation
of imperfect mobility
Establish a lower
cost position
Exploring Corporate Strategy 8e, © Pearson Education 2008 6-23

24. Yellow Tail
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25. Establishing Strategic Lock-In
Size or market
dominance
First-mover
dominance
Self-reinforcing
commitment
Insistence on
preservation
of position
Exploring Corporate Strategy 8e, © Pearson Education 2008 6-25

26. Exhibit 6.5 Competitive Strategies
in Hypercompetitive Conditions
Exploring Corporate Strategy 8e, © Pearson Education 2008 6-26

27. Exhibit 6.6 Competition
and Collaboration
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28. What is Game Theory?
Game theory is concerned with the
interrelationships between the
competitive moves of a set of
competitors.
Exploring Corporate Strategy 8e, © Pearson Education 2008 6-28

29. Exhibit 6.7 A Prisoner’s Dilemma
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30. Case Example: Madonna
Describe and explain Madonna’s
competitive strategy.
Why has she experienced sustained
success?
Exploring Corporate Strategy 8e, © Pearson Education 2008 6-30