The document outlines a lesson on business-level strategy, competitive rivalry, and competitive dynamics, focusing on the importance of customer relationships and satisfying their needs to achieve strategic competitiveness. It discusses five types of business-level strategies: cost leadership, differentiation, focused cost leadership, focused differentiation, and integrated cost leadership or differentiation, while emphasizing the role of competitor analysis and market dynamics. The document also includes a class project assignment about choosing the suitable business organization for two individuals starting a laundry and dry cleaning business, requiring an analysis of different business structures.

1. BUS 499, Week 4: Business-Level Strategy, Competitive
Rivalry, and Competitive Dynamics
Slide #
Topic
Narration
1
Introduction
Welcome to Senior Seminar in Business Administration.
In this lesson, we will discuss Business-Level Strategy,
Competitive Rivalry, and Competitive Dynamics.
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2
Objectives
Upon completion of this lesson, you will be able to:
Identify various levels and types of strategy in a firm.
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3
Supporting Topics
In order to achieve this objective, the following supporting
topics will be covered:
Customers: their relationship with business-level strategies;
The purpose of a business-level strategy;
Types of business-level strategies;
A model of competitive rivalry;
Competitor analysis;
Drivers of competitive actions and responses;
Competitive rivalry;
Likelihood of attack;
Likelihood of response; and

2. Competitive dynamics.
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4
Customer Relationships
Strategic competitiveness results only when the firm is able to
satisfy a group of customers by using its competitive advantages
as the basis for competing in individual product markets. A key
reason firms must satisfy customers with their business-level
strategy is that returns earned from relationships with customers
are the lifeblood of all organizations. The most successful
companies try to find new ways to satisfy current customers
and/or meet the needs of new customers.
The firm’s relationships with its customers are strengthened
when it delivers superior value to them. Strong interactive
relationships with customers often provide the foundation for
the firm’s efforts to profitably serve customers’ unique needs.
The reach dimension of relationships with customers is
concerned with the firm’s access and connection to customers.
Richness is concerned with the depth and detail of the two-way
flow of information between the firm and the customer.
Affiliation is concerned with facilitating useful interactions
with customers.
Deciding who the target customer is that the firm intends to
serve with its business-level strategy is an important decision.
Companies divide customers into groups based on differences in
the customers’ needs to make this decision. Dividing customers
into groups based on their needs is called market segmentation,
which is a process that clusters people with similar needs into
individual and identifiable groups.
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5

3. Customer Relationships, continued
After the firm decides who it will serve, it must identify the
targeted customer group’s needs that its good or services can
satisfy. Successful firms learn how to deliver to customers what
they want and when they want it. In a general sense, needs are
related to a product’s benefits and features. Having close and
frequent interactions with both current and potential customers
helps firms identify those individuals’ and groups’ current and
future needs.
As explained in previous lessons, core competencies are
resources and capabilities that serve as a source of competitive
advantage for the firm over its rivals. Firms use core
competencies to implement value-creating strategies and
thereby satisfy customers’ needs. Only those firms with the
capacity to continuously improve, innovate, and upgrade their
competencies can expect to meet and hopefully exceed
customers’ expectations across time.
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6
Purpose of a Business-Level Strategy *
The purpose of a business-level strategy is to create differences
between the firm’s position and those of its competitors. To
position itself differently from competitors, a firm must decide
whether to perform activities differently or to perform different
activities. Thus, the firm’s business-level strategy is a
deliberate choice about how it will perform the value chain’s
primary and support activities to create unique value.
Firms develop an activity map to show how they integrate the
activities they perform. Positions built on systems of activities
are far more sustainable than those built on individual
activities.
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4. 7
Types of Business-Level Strategies, continued*
Most firms choose from among five business-level strategies to
establish and defend their desired strategic position against
competitors. These competitive advantages are:
Cost leadership;
Differentiation;
Focused cost leadership;
Focused differentiation; and
Integrated cost leadership or differentiation.
Based on the nature and quality of its internal resources,
capabilities, and core competencies, a firm seeks to form either
a cost competitive advantage or a uniqueness competitive
advantage as the basis for implementing its business-level
strategy.
There are also two types of competitive scopes: broad and
narrow target. As the name implies, a broad target market seeks
to use their competitive advantage on an industry-wide basis
while a narrow competitive advantage intends to serve the needs
of a narrow target customer group. As shown in the figure
above, a firm could also strive to develop a combined
competitive advantage.
None of the five business-level strategies shown is inherently or
universally superior to the others. The effectiveness of each
strategy is contingent both on the opportunities and threats in a
firm’s external environment and on the strengths and
weaknesses derived from the firm’s resource portfolio.
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8
Cost Leadership
The cost leadership strategy is an integrated set of actions taken

5. to produce goods or services with features that are acceptable to
customers at the lowest cost, relative to that of competitors.
Firms using the cost leadership strategy commonly sell
standardized goods or services to the industry’s most typical
customers.
Cost leaders’ goods and services must have competitive levels
of quality that create value for customers. At the extreme,
concentrating only on reducing costs could result in the firm
efficiently producing products that no customer wants to
purchase. In fact, such extremes could lead to limited potential
for innovation, employment of lower-skilled workers, poor
conditions on the production line, accidents, and a poor quality
of work-life for employees.
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9
Differentiation Strategy
The differentiation strategy is an integrated set of actions taken
to produce goods or services that customers perceive as being
different in ways that are important to them. While cost leaders
serve a typical customer in an industry, differentiators target
customers for whom value is created by the manner in which the
firm’s products differ from those produced and marketed by
competitors.
Firms must be able to produce differentiated products at
competitive costs to reduce upward pressure on the price that
customers pay. When a product’s differentiated features are
produced at noncompetitive costs, the price for the product can
exceed what the firm’s target customers are willing to pay.
When the firm has a thorough understanding of what its target
customers value, the relative importance they attach to the
satisfaction of different needs, and for what they are willing to
pay a premium, the differentiation strategy can be successful.

6. Next slide.
10
Focus Strategies
Firms choose a focus strategy when they intend to use their core
competencies to serve the needs of a particular industry segment
or niche to the exclusion of others. Examples of specific market
segments that can be targeted by a focus strategy include:
A particular buyer group;
A different segment of product line; or
A different geographic market.
Thus, the focus strategy is an integrated set of actions taken to
produce goods or services that serve the needs of a particular
competitive segment.
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11
Check Your Understanding
12
Competition
Firms operating in the same market, offering similar products,
and targeting similar customers are competitors.
Competitor rivalry is the ongoing set of competitive actions and
competitive responses that occur among firms as they maneuver
for an advantageous market position.
A sequence of firm-level moves, rivalry results from firms
initiating their own competitive actions and then responding to
actions taken by competitors. Competitive behavior is the set of
competitive actions and competitive responses the firm takes to
build or defend its competitive advantages and to improve its
market position.

7. Firms competing against each other in several product or
geographic markets are engaged in multimarket competition.
All competitive behavior, that is, the total set of actions and
responses taken by all firms competing within a market, is
called competitive dynamics.
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13
A Model of Competitive Rivalry *
Competitive rivalry evolves from the pattern of actions and
responses as one firm’s competitive actions have noticeable
effects on competitors, eliciting competitive responses from
them. This pattern suggests that firms are mutually
interdependent.
The competitive rivalry model as shown above, is a sequence of
activities commonly involved in competition between a
particular firm and each of its competitors. This model presents
a straightforward model of competitive rivalry at the firm level;
this type of rivalry is usually dynamic and complex. Companies
can use the model to understand how to be able to predict
competitors’ behavior and reduce the uncertainty associated
with competitors’ actions.
Next, we will describe each components of the model in detail.
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14
Competitor Analysis *
A competitor analysis is the first step the firm takes to be able
to predict the extent and nature of its rivalry with each
competitor. Market commonality and the resource similarity of
a firm determine the extent to which the firms are competitors.
Market commonality refers to the number of markets in which
firms compete against each other.

8. Next slide.
15
Market Commonality
Firms sometimes compete against each other in several markets
that are in different industries. This situation finds competitors
coming into contact with each other several times, a condition
called market commonality. More formally, market
commonality is concerned with the number of markets with
which the firm and a competitor are jointly involved and the
degree of importance of the individual markets to each.
Firms competing against one another in several or many markets
engage in multimarket competition.
Firms competing in several markets have the potential to
respond to a competitor’s actions not only within the market in
which the actions are taken, but also in other markets where
they compete with the rival.
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16
Resource Similarity
Resource similarity is the extent to which the firm’s tangible
and intangible resources are comparable to a competitor’s in
terms of both type and amount. Firms with similar types and
amounts of resources are likely to have similar strengths and
weaknesses and use similar strategies.
When performing a competitor analysis, a firm analyzes each of
its competitors in terms of market commonality and resource
similarity.
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17
Drivers of competitive actions*

9. The drivers of competitive behavior as shown in the competitive
model are awareness, motivation and ability.
Market commonality and resource similarity influence these
drivers. In turn, the drivers influence the firm’s competitive
behavior.
Awareness, which is a prerequisite to any competitive action or
response taken by a firm, refers to the extent to which a firm
competitors recognize the degree of their mutual
interdependence that results from market commonality and
resource similarity. A lack of awareness can lead to excessive
competition, resulting in negative effect on all competitors’
performance.
Motivation, which concerns the firm’s incentive to take action
or to respond to a competitor’s attack, relates to perceived gains
and losses. Thus, a firm may be aware of competitors but may
not be motivated to engage in rivalry with them if it perceives
that its position will not improve or that its market position
won’t be damaged if it doesn’t respond.
And, in some instance, a firm may be aware of the markets it
shares with competitors and be motivated to respond to an
attack, but lack the ability to do so. Ability relates to each
firm’s resources and the flexibility they provide.
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18
Strategic and Tactical Actions
Firms use both strategic and tactical actions when forming their
competitive actions and competitive responses in the course of
engaging in competitive rivalry.
A competitive action is a strategic or tactical action the firm
takes to build or defend its competitive advantages or improve

10. its market position.
A competitive response is a strategic or tactical action the firm
takes to counter the effects of a competitor’s competitive
action.
A strategic action or a strategic response is a market-based
move that involves a significant commitment of organizational
resources and is difficult to implement and reverse.
A tactical action or a tactical response is a market-based move
that is taken to fine-tune a strategy; it involves fewer resources
and is relatively easy to implement and reverse.
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19
Likelihood of Attack *
In addition to the competitive analysis, and the drivers of
competitive behavior, the likelihood of attack and response
affects competitive rivalry. Some of the factors for the
likelihood of attack are: first-mover incentives, organizational
size, and quality.
First-Mover Incentives is a firm that takes an initial competitive
action in order to build or defend its competitive advantages or
to improve its market position. In general, first movers allocate
funds for product innovation and development, aggressive
advertising, and advanced research and development. Some of
the benefits of being a first-mover are:
First. Earning above-average returns until its competitors
respond to its action.
Second. Gaining loyalty of customers who may become
committed to the goods or services that first made them
available.
And, third. Gaining market share that can be difficult for
competitors to take during future competitive rivalry.

11. Being a first-mover carries some risk too. For example, it is
difficult to accurately estimate the returns and the cost to
develop a product innovation can be substantial, reducing the
slack available to support further innovation.
There are also second-movers that typically respond to first
mover’s through imitation and late-movers who respond a
significant amount of time after the first and second movers
respond.
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20
Likelihood of Attack, continued *
An organization’s size also affects the likelihood it will take
competitive actions as well as the types and timing of those
actions. In general, small firms are more likely to launch
competitive actions and tend to do it more quickly while large
firms initiate limited number or types of actions along with
more strategic actions during a given period.
In addition, quality affects competitive rivalry. The firm
evaluating a competitor whose products suffer from poor quality
can predict declines in the competitor’s sales revenue until the
quality issues are resolved.
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21
Likelihood of Response *
The success of a firm’s competitive action is affected by the
likelihood that a competitor will respond to it as well as by the
type and effectiveness of that response. In addition to market
commonality, resource similarity and awareness, motivation,
and ability, firms evaluate three other factors—type of
competitive action, reputation, and market dependence.

12. There are different types of competitive action. Competitive
responses to strategic actions differ from responses to tactical
actions. In general, strategic actions elicit fewer total
competitive responses because strategic responses involve a
significant commitment of resources and are difficult to
implement and reverse. In addition, the time needed to
implement a strategic action and to assess its effectiveness can
delay the competitor’s response to that action. In contrast, a
competitor likely will respond quickly to a tactical action.
The second factor is actor’s reputation. A reputation is a
positive or negative attribute ascribed by one rival to another
based on past competitive behavior. A positive reputation may
be a source of above-average returns, especially for consumer
goods producers. Thus, a positive corporate reputation is of
strategic value and affects competitive rivalry.
And, lastly, market dependence affects the likelihood of a
firm’s response. Market dependence, denotes the extent to
which a firm’s revenues or profits are derived from a particular
market. In general, competitors with high market dependence
are likely to respond strongly to attacks threatening their market
position.
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22
Competitive Dynamics
Whereas competitive rivalry concerns the ongoing actions and
responses between a firm and its competitors for an
advantageous market position, competitive dynamics concern
the ongoing actions and responses taking place among all firms
competing within a market for advantageous positions.
Competitive dynamics differ in slow-cycle, fast-cycle, and
standard-cycle markets. The sustainability of the firm’s
competitive advantages differs across the three market types.

13. Slow-cycle markets are those in which the firm’s competitive
advantages are shielded from imitation commonly for long
periods of time and where imitation is costly. Thus, competitive
advantages are sustainable in slow-cycle markets.
Fast-cycle markets are markets in which the firm’s capabilities
that contribute to competitive advantages aren’t shielded from
imitation and where imitation is often rapid and inexpensive.
Thus, competitive advantages aren’t sustainable in fast-cycle
markets. Firms competing in fast-cycle markets recognize the
importance of speed.
Standard-cycle markets are markets in which the firm’s
competitive advantages are moderately shielded from imitation
and where imitation is moderately costly. Competitive
advantages are partially sustainable in standard-cycle markets,
but only when the firm is able to continuously upgrade the
quality of its capabilities, making the competitive advantages
dynamic.
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23
Check Your Understanding
24
Summary
We have reached the end of this lesson. Let’s take a look at
what we have covered.
First, we discussed customer relationships. Strategic
competitiveness results only when the firm is able to satisfy a
group of customers by using its competitive advantages as the
basis for competing in individual product markets. A key reason
firms must satisfy customers with their business-level strategy
is that returns earned from relationships with customers are the

14. lifeblood of all organizations. The most successful companies
try to find new ways to satisfy current customers and/or meet
the needs of new customers.
Next we looked at the purpose of a business-level strategy.
Business-level strategy is created to by a firm to position itself
differently from competitors. At this point, a firm must decide
whether to perform activities differently or to perform different
activities.
We also looked at five business-level strategies types which are
used to establish and defend a firm’s desired strategic position
against competitors. These competitive advantages are:
Cost leadership;
Differentiation;
Focused cost leadership;
Focused differentiation; and
Integrated cost leadership or differentiation.
Next we discussed a model of competitive rivalry. This model is
a sequence of activities commonly involved in competition
between a particular firm and each of its competitors. In this
model, we looked at competitive analysis, drivers of
competitive behavior, inter-firm rivalry and outcomes.
We concluded the lesson with a discussion on types of markets.
These include slow-cycle, fast-cycle, and standard-cycle
markets.
This completes this lesson.
BUSINESS LAW II
CLASS PROJECT

15. John Smith and Juan Gonzalez are good friends and have known
each other for a long time. They are interested in opening a
“laundry and dry cleaning” business.
They have different social and economic backgrounds and
needs. Mr. Smith is retired and has some investment money
available; Mr. Gonzalez is a younger man with little money but
a lot of experience in the “laundry and dry-cleaning business”
and is willing to work in the proposed business.
Smith and Gonzalez decide to consult with your employer, M.
Newlaw, Esq., as to which type of business organization will be
best suited for their individual needs.
M. Newlaw needs your assistance in determining the most
adequate type of organization. To this end he assigns you a
research project (8-10) pages long, typed, double spaced, 1 inch
margins) in which you must consider the different types of
business organizations (partnerships, limited partnerships,
corporations, limited liability companies) and recommend
based on the individual needs of the clients, the issue of
liability, easy of organization, taxation, salaries, transferability,
etc., the type of business organization best suited for his clients.
The report is to be 8-10 long and done in APA-Style