This chapter discusses business-level strategy and how firms can gain competitive advantage through strategies like overall cost leadership or differentiation. It describes three generic business-level strategies - overall cost leadership, differentiation, and focus. Firms can pursue a cost leadership strategy by efficiently performing value chain activities to achieve lower costs than competitors. They can also differentiate their products or services in ways that are valued by customers. The chapter outlines various approaches for achieving a cost advantage, such as controlling cost drivers, leveraging experience curve effects, and revamping the value chain. It emphasizes that success requires finding unique ways to lower costs that are difficult for rivals to copy.

1. CHAPTER 5
McGraw-Hill/Irwin Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved.
STRATEGIC MANAGEMENT  Gregory G. Dess and G. T. Lumpkin
The Strategic Management ProcessChapter 1
Analyzing Goals
and Objectives
Chapter 2
Analyzing the
External
Environment
Chapter 3
Analyzing the
Internal
Environment
Chapter 4
Assessing
Intellectual Capital
Chapter 5
Formulating Business-Level
Strategies
Chapter 7
Formulating
International
Strategies
Chapter 6
Formulating
Corporate-Level
Strategies
Chapter 8
Formulating Internet
Strategies
Chapter 9
Implementation:
Strategic Controls
Chapter 10
Implementation:
Organization Design
Chapter 11
Strategic Leadership:
Excellence, Ethics, and
Change
Chapter 12
Strategic Leadership: Fostering
Entrepreneurship
Strategy Analysis
Strategy Formulation Strategy Implementation
Chapter 13
Case Analysis
Exhibit 1.2
TRANSPARENCY-1

2. Chapter Five
Business-Level Strategy
Creating and Sustaining
Competitive Advantages

3. CHAPTER 5
McGraw-Hill/Irwin Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved.
STRATEGIC MANAGEMENT  Gregory G. Dess and G. T. Lumpkin
After studying this chapter, you should have
a good understanding of:
• The central role of competitive advantage in the study of CSP
 Definition of business and strategy competitive advantage
 The three generic competitive strategies(GS)—overall cost
leadership, differentiation, and focus
 How the successful attainment of generic strategies can
improve a firm’s relative power vis á vis the five forces that
determine an industry’s average profitability
 The pitfalls managers must avoid in striving to attain generic
strategies(Lower cost , differentiation, and focus strategies)
 How firms can effectively combine the generic strategies of
overall cost leadership and differentiation
• The importance of considering the industry life cycle to
determine a firm’s business-level strategy and its relative
emphasis on functional area strategies and value creating
activities
Learning
Objectives
TRANSPARENCY-41

4. 4
Strategy Formulation(cont.)
Business-level
strategy
HowHow firm's distinctive competencies to satisfy those needs in waysin ways
that are innovation (provide access to a wide variety of markets),
efficiency, quality, and customer responsiveness(superior benefits to
the consumer), all of which can be leveraged to create and sustain
competitive advantages( C or D).
WhoWho are our customers
(Potential customers)?
target market
WhatWhat unfulfilled
needs to they have?
_ socio-cultural seg-t
_e.g., ASEAN
Dr. PHEA Vanna , 2016

5. ASEAN Social Indicators
5
Country
Total Land
Area (km2)
Total Pop
(thousands)
Poverty
$1.25(%)
2012
Poverty
$2(%)
2012
Rural
Pop(%)
Life Exp
2013
Literacy
(%)
2012
Employm
ent(%)
2013
Labor
force(%)
(2013)
Age
dep(%)201
4
Brunei 5,270 423 …. .… 23.1 78.6 95.4 61.6 64 38.3
Cambodia 176,520 15,408
10.1
(2011)
41.3
(2011)
79.5 71.7
73.9
(2009)
82.3 82.5 55.8
Indonesia 1,811,570 252,812
16.2
(2011)
43.3
(2011)
47 70.8
92.8
(2011)
63.5 67.7 49.5
Lao PDR 230,800 6,894 30.3 62 62.4 68.2
72.7
(2005)
76.6 77.7 63.6
Malaysia 328,550 30,188 0.0 (2009) 2.3 (2009) 26 75
93.1
(2010)
57.5 59.4 44.2
Myanmar 653,290 53,719 .… .… 66.4 65.1 92.6 75.9 78.6 49.9
Philippines 298,170 100,096 19 41.7 55.5 68.7
95.4
(2008)
60.6 65.2 58
Singapore 700 5,470 .… .… .… 82.3 96.4 65.9 67.8 36.9
Thailand 510,890 67,223 0.3 (2011) 3.5 (2010) 50.8 74.4
96.4
(2010)
71.7 72.3 39
Viet Nam 310,070 90,730 2.4 12.5 67 75.8
93.5
(2009)
75.9 77.5 42.3
ASEAN 4,325,830 622,964
Age dependency is the proportion of dependents (people younger than 15 or older than 64) per 100 working-age population (those ages 15–64).
Source: World Bank, World Development Indicators, accessed September 2015.

6. 5-6
Strategy and Competitive AdvantageStrategy and Competitive Advantage
 Competitive advantage exists when a firm’s strategy gives it
an power in_
 Attracting customers and
 Defending against competitive forces(see into next slide)
 Convince customers firm’s product / service offers superior value:
 A good product at a low price(Price of production)_cost per
unite production(To build around the firm's internal potential
for creating value).
 A superior product worth paying more for quality,…. and
 A best-value product_ scope of manufacturing production and
revenue.(Refer to the firm's ability to utilize its resources effectively).
Key to Gaining a Competitive Advantage

7. Business Level Strategy
Dr. PHEA Vanna 2013
A strategic business unit may be a division, product line, or other
profit center that can be planned independently from the other
business units of the firm_ the strategic issuesissues areare less aboutless about the
coordination of operating units and more about developing and
sustaining a competitive advantage for goods and services that are
produced. At the business level strategy deals with:
Positioning the business against rivals (Overall cost-leadership or
differentiation_ special price ,quality & service offer to customers….)
Anticipating(expecting) changes in demand and technologies for
adjustingadjusting the strategythe strategy to adapt them_ Broad (industry wide)
Influencing the nature of competition through strategic actions
such as vertical integration decisions and through political actions
such as lobbying(e.g., Cam-telecommunication )._ Narrow ( Focus
market segment)

8. Generic strategies
Source: Dess et al., 2008, p. 157
Dr. PHEA Vanna 2010
Ch.5.business-level StrategyCh.5.business-level Strategy
Low-cost leadership means low overall
or total costs: performing value chain
activities efficiently and cost effectively.:
DS based on continuous development
and investment in features ,qualities
,services, technologies...that differentiate
outputs in the ways that cause buyers to
prefer firm’s product or service are
unique and valued_ Quality/Price ... to
perceived by the customer groups.
e.g., buyer segments, or geographic markets and they must attain
advantages either through DS &CL..
( Broad )
(Narrow)
Strategic actions & Political actions

9. 5-11
 Make achievement of meaningful lower costs than rivals the
theme of firm’s strategy (Cost advantages)_Input
 Include maintained quality and additional features and
support services in product offering that buyers consider
essential( Cost advantages)_Transformation
 Find approaches to achieve a cost advantage in ways
difficult for rivals to copy or match(be equalized).(Strategy)
Low-cost leadership means low overall or total
costs, not just low manufacturing or
production costs!
Keys to Success
Low-Cost Provider StrategiesLow-Cost Provider Strategies

10. 5-12
Option 1: Use lower-cost border( MES) to
 Underprice competitors and attract price-sensitive buyers
in enough numbers to increase total profits
Do a better job than rivals of performing value
chain activities efficiently and cost effectively. See into slide#14
Option 2: Maintain present price, be satisfied with present
market share, and use lower-cost edge(border) to
 Earn a higher profit margin on each unit sold, thereby
increasing total profits
Options: Achieving a Low-Cost AdvantageOptions: Achieving a Low-Cost Advantage
Revamp(reform) value chain to bypass cost-producing
activities that add little value from the buyer’s perspective.

11. 5-14
ApproachApproach1:1: Controlling the CostControlling the Cost
DriversDrivers
 Capture scale economies(Slide17)
 Capture learning and experience curve effects(Slides15-16)
 Manage costs of key resource inputs
 Consider linkages with other activities in value chain
 Find sharing opportunities with other business units
 Compare vertical integration vs. outsourcing
 Assess first-mover advantages vs. disadvantages(Slide16)
 Control percentage of capacity utilization
 Make prudent strategic choices(reasonable) related to
operations

12. Sources of low cost leadership
• Experience curve_ relates production costs to produce
output: as output doubles, costs declined by 10% to 30%.
Decline in unit costs resulting from learning (firms
acquire cost advantages are improving process efficiencies( skill in designing
products & high level of expertise in manufacturing process engineering… ),and
gaining unique access to a large source of lower cost materials inputs , making
optimal outsourcing and vertical integration decisions ).
Production innovations(e.g. TD give the best opportunity for
driving down the costs of production_ R&D(3)
Increasing demand (the price elasticity of demand measures when
the responsiveness of quantity demanded to change in price) is
associated with changes in the marketing situation and impacting the
marketing strategy. e.g., Grow stageGrow stage _ the firm seeks to build brand
preference and increase market share: Product quality, Pricing , Distribution
channel , and promotion). see into footnote and slides#14-15.
Dr. PHEA Vanna 2013

13. Experience curve segment
If a company is the first to market, may produce
sustained competitive advantage (e.g., Cell card
Co.)
 Quick access in Cambodia market 1997(Alliance:
Luxumburge _61.5% & RG_38.5% )
 Second company after Camsin
 Capital & No competitor leader telecom(Royal
Group in 2009 with capital $421 million)
 offer 3G technology, 2011 & internet fast
 Network with government
 Technical corporate with Huawei & Samsung
• Typically a luxury product or service(degree necessary) usually to a
broad market using standardization to derive greatest benefits fromDr. PHEA Vanna 2014

14. Experience curve and Esc
Dr. PHEA Vanna 2012
10% ≅20% ≅30%
Economiesofscale
original
saving20%
Original cost saving 40%.
Experience curve

15. 5-19
ApproachApproach 2:2: Revamping theRevamping the
Value ChainValue Chain
 Make greater use of Internet technology applications
 Use direct-to-end-user sales/marketing methods
 Simplify product design(slide20)
 Offer basic, no-frills product/service
 Shift to a simpler, less capital-intensive, or more flexible
technological process()
 Find ways to bypass use of high-cost raw materials(slide20)
 Relocate facilities closer to suppliers or customers(slide21)
 Drop “something for everyone” approach and focus on a
limited product/service

16. Overall cost leadership(factors)
• Lowest cost producer (1)relative to have the
following internal strengths: e.g., Beeline Co. that late to
Cambodian market: Exhibit 5.3. The Value Chain Activities(see in to slides#10-11):
Access to the Capital required to make a significant investment
in barrier to entry that many firms may not overcome.(e.g., 2009
_build brand preference and increase market share through
decreasing the price form 2 to 4cens/1min ).
Skill in designing products for efficient manufacturing. e.g.,
Infrastructure ,HRM and Operations.
High level of expertise in TD(manufacturing process engineering)
Product quality is maintained quality and additional features and support
services may be added.
And efficient distribution channels, Marketing &sales, and
support Services are added as demand increases and customers
Dr. PHEA Vanna 2014 ApproachApproach 2:2: Revamping the Value ChainRevamping the Value Chain

17. Overall cost leadership(cont.)
• Purchasing Power Parity (PPP)on differentiation with overall
cost leadership: including specifics acceptable to customers(4)
e.g., Rice production cost in Thai ,VN & Cambodia. So, PPP
should be taken into account between Thai ,VN & Cambodia
forward creating investment advantages: expend on operating cost [Cam:
Manures(23to 37%), energy(oil _ 30% & electricity compare between Cam
&VN =2 to 9 times price up ), transportation (1tone/100km=15$ ),interest
rate ,TD, political/legal support & provide to …..]
Dr. PHEA Vanna 2014
ApproachApproach 2:2: Revamping the Value ChainRevamping the Value Chain

18. 5-22
Keys to Success in Achieving Low-Cost Leadership
 Scrutinize(examine)each cost-creating activity, identifying cost
drivers(Esc)
 Use knowledge about cost drivers to manage costs of each activity
down year after year(experience curve)
 Find ways to restructure value chain to eliminate nonessential
work steps and low-value activities(slide23-24)
 Work diligently(старательно) to create cost-conscious corporate
cultures:
 Feature broad employee participation in continuous cost-
improvement efforts and limited perks (вскидывать)for
executives
 Strive to operate with exceptionally small corporate staffs
 Aggressively pursue investments in resources and capabilities that
promise to drive costs out of the business(Slide25)

19. CHAPTER 5
McGraw-Hill/Irwin Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved.
STRATEGIC MANAGEMENT  Gregory G. Dess and G. T. Lumpkin
Value Chain Activities: Overall Cost
Leadership
Few management layers(hierachy) to
reduce overhead costs
Firm Infra-
structure
Standardized accounting practices to
minimize personnel required
Human Resource
Management
Minimize costs associated with
employee turnover through effective
policies
Effective orientation and training
programs to maximize employee
productivity(efficiency)
Technology
development
Effective use of automated technology to
reduce scrap page rates(неисправимый брак)
Expertise in process engineering to reduce
manufacturing costs(operating costs)
Procurement
Effective policy guidelines to ensure low
cost raw materials (with acceptable
quality levels)
Shared purchasing operations with other business
units(differentiated strategies _ Synergy or build
portfolio )
Efficient
layout of
receiving
dock
operations
Effective use of
quality control
inspectors to
minimize rework
on the final
product
Effective
utilization of
delivery
fleets
 Purchase of
media in large
blocks
(advertising)
 Sales force
utilization is
maximized by
territory mang-
t (tactic divide
products or
services)
 Thorough service
repair guidelines to
minimize repeat
maintenance calls
Inbound
Logistics
Operations Outbound
Logistics
Marketing and
Sales
Service
 Use of single
type of repair
vehicle to
minimize
maintenance
costs
Margin(SA)
Margin(PA)
Exhibit 5.3
Source: Adapted
from Porter, M.E.
1985. Competitive
Advantage, New
York: Free Press.
TRANSPARENCY-44

20. Exhibit 5.3: Firms that succeed in cost leadership
often have the following internal strengths:
Access to the capital required to make a significant
investment in production assets; this investment represents a
barrier to entry that many firms may not overcome.(P)
e.g., Xbox 360., cost per unit $470 but sells only $399{from 2005 to 2016 will loss
$1.26B }. So ,strategic target sells its products at below the average industry prices to capture
the market share in long term perspective(2020).)
Skill in designing products for efficient manufacturing,
for example, having a small component count to shorten the
assembly process.(PA&SA_ Infrastructure ,HRM and
Operations)
High level of expertise in manufacturing process
engineering.(SA_ Technology development "TD")
Efficient distribution channels.(PA_ In/out bound Logistic )
Dr. PHEA Vanna 2013

21. 5-26
Characteristics of a Low-Cost ProviderCharacteristics of a Low-Cost Provider
 Cost conscious corporate culture
 Employee participation in cost-control efforts(Reward)
 Ongoing efforts to benchmark costs(boundary)
 Intensive scrutiny of budget requests(досконально изучать)
 Programs promoting continuous cost improvement
Successful low-cost producers champion
frugality(economy) but wisely and aggressively
invest in cost-saving improvements !
ProcedureProcedure

22. 5-27
When Does a Low-CostWhen Does a Low-Cost
Strategy WorkStrategy Work Best??
 Price competition is vigorous(aggressive)
 Product is standardized or readily available from many
suppliers
 There are few ways to achieve differentiationdifferentiation that have value
to buyers
 Most buyers use product in same ways
 Buyers incur low switching costs
 Buyers are large and have significant bargaining power
 Industry newcomers use introductory low prices to attract
buyers and build customer base

23. 5-28
Pitfalls of Low-Cost StrategiesPitfalls of Low-Cost Strategies
 Being overly aggressive in cutting price_ Vulnerable to intense price
competition
 Low cost methods are easily imitated by rivals
 Imitation. e.g., technology improves, the competition may be
able to leapfrog the production capabilities, thus eliminating the
competitive advantage.
 Becoming too fixated onfixated on reducing costs and ignoring:
 Buyer interest in additional features and support services
 Declining buyer sensitivity to price
 Changes in how the product is used
 Technological breakthroughs open up cost reductions for rivals

24. Competitive risks of low cost strategy
• Vulnerable to intense price competition
• Imitation. e.g., technology improves, the
competition may be able to leapfrog the production
capabilities, thus eliminating the competitive
advantage.
• Obsolescence(out of date) of equipment, processes
• Over emphasis on costs may result in overlooking
customer needs(neutralized O&T).
• Low price may cement customer expectations
making subsequent price increases difficult(in the
future time_ e.g., Chinese's products _ lower P&Q)
 Vulnerable_непригодный для обороны
Dr. PHEA Vanna 2010

25. Differentiation strategy(DS)
Objective DS based on continuous development and
investment in features , qualities ,services, technologies….that
differentiate outputs in the ways that cause buyers to choose
firm’s product or service over brands of rivals _ so, offers unique
attributes(e.g., qualities ,services& technologies) allows a firm to
Charge a premium price , Increase unit sales and Build brand loyalty:
 Charge a premium price(PP) for it. PP of a diff-tion
strategy reflects Value actually delivered to the buyer may be
important when :
• Nature of differentiation is hard to quantify (buyers lack
comparable alternatives products of rivals by offering the specific
quality and support services after selling as rapidly respond to costumer's
request & replacement parts)
• Buyers are making first-time purchases and repurchase is infrequent
• Buyers are unsophisticated(настоящий)
Dr. PHEA Vanna 2015

26. Differentiation strategy(DS)
 Increase unit sales and Build brand loyalty
(e.g., iPhone Co. see next slides) _ if suppliers
increase their prices the firm may be able to pass along
the costs to its customers who cannot find substitute
products and competitors are not easily matched or
cheaply copied:
 Firm offer the product quality is maintained quality and additional
features and support Services may be added ;
 Corporation reputation in quality and innovation (create brand loyalty);
Distribution channel networks (e.g., Apple(iPhone) in 2014 net sale are
28% through direct and 72% (70%,2013) through distributors.) &
Promotion( Strong sale team_ Facilities, Professionalism and personality
of employees and rapidly respond to costumer's request ).
Dr. PHEA Vanna 2014

27. Smartphone market share
In Q4 2014 Apple took 93% (92%, Q1 2015) of smartphone
industry profit.

28. iPhone sale
In Q4 2014 Apple took 93% of smartphone industry profit

29. DS (cont.)
To be successful, customers must:
Position Vis-à-vis rivals' products (1) provides protection
against rivalry through brand loyalty with lowers customer
sensitivity on price and raises customer switching costs(2) :
A. by increasing a firm's margins( PA&SA), DS avoids
the need for a low cost position: Maintained Quality outputs&..
B. DS helps a firm to deal with supplier powersupplier power((Outsourcing
purchase of high quality components to enhance product image ))
and reduces buyer power since buyers lack comparable
alternatives products of rivals by offering the specific quality and
additional features and support services after selling as rapidly respond
to costumer's request & replacement parts).
 E.g.,Toyota & Ford Motors sales leading in world automobile, 2014).

30. DS (cont.)
C. Supplier power is also decreased the demand of price
elasticity (In this case "E<1= " inelastic", less of a change in
quantity demanded, but a price increase) because suppliers will be
able to charge higher prices for outputs. Frequently used in
Introduction Stage_ firm seeks to build product awareness and develop a
market for the product), see into footnoted).
• D. firms will enjoy high customer loyalty(higher entry barriers
result).Best choices to gain a longer-lasting, more profitable
competitive edge :
– New product innovation & Technical superiority
– Product quality and reliability
– Comprehensive customer service(e.g.,e.g., Outstanding Toyota servicesOutstanding Toyota services)
– Unique competitive capabilities(e.g., Tangible or Intangible
resources)
Dr. PHEA Vanna 2015

31. DS (cont.)
And 2) be willing to pay for Switching strategy(objective goal
is useful opportunity from market niche to achieve investor needs )
_perceive value in the differences of buyers Power : less prices and
raises the quantity demanded customers(Frequently used in the short –termshort –term
&& grow stagegrow stage _ the firm seeks to build brand preference and increase market share:
 Product quality is maintained quality and additional features and
support services may be added.
 Pricing is maintained as the firm enjoys increasing demand with
little competition.
 Distribution channels are added as demand increases ( iPhone
_70%,2013 &72%,2014 through distributors.) and consumers show
acceptance of the product.
 Promotion is aimed at a broader audience (Public).e.g., iPhone &
Samsung switch advertising:
 4% of iPhone user (20%market share)say they will switch to use Samsung.
 10% of Samsung user(30%market share) say the will switch to use iPhone.
Dr. PHEA Vanna 2015

32. Focus strategy(Objectives)
• FS is based on the choice of a narrow competitive
scope within that segment (or a narrow piece of the
total market ) attempts to achieve either a cost
advantage(CF) or differentiation(DF):
(1) firm using a focus strategy often enjoys a high degree of
customer loyalty, and this entrenched loyalty discourages
(observed) other firms from competing directly (so, Choose a
market niche where buyers have distinctive preferences, special
requirements, or unique needs)
and (2)focus strategy have lower volumes and therefore less
bargaining power with their suppliers (so, Develop unique
capabilities to serve needs of target buyer segment).E.g., Cam
target buyers: 80% is lower vs 20% higher levels.

33. Focus strategy(FS) cont.
• FS has two variants of opportunity: CF & DF
 Cost focus(CF): Create a cost advantage in target market
(Approaches to Defining a Market Niche. e.g., STEP
_Geographic uniqueness, Special product attributes appealing
only to niche buyers) _ Inputs
 Differentiation focus(DF): firm seeks to differentiate in its
target market(Approaches to Defining a Market Niche
exploits the Specialized requirements in using product/service
& Special product attributes appealing only to niche buyers _
DF may be able to pass higher costs to customers(P) since
close substitute products (Q)do not exist.): Outputs offer to
buyer targets.
 Some risks of focus strategies include imitation and changes in the
target segments.

34. Cost leadership and the five competitive forces
• Rivalry is associated with changes in the marketing situation
and impacting the marketing strategy:Where,When, Who and How ?
– Existing rivals _ compete on lower price considering
May not survive a price war (Firm's manager will depend
on the selected strategy in the Maturity & Decline phase.):
Maturity_ the strong growth in sales decrease. Competition
may appear with similar products. The primary objective at this
point is to defend market share while maximizing profit :
Product features may be enhanced and promotion to
differentiate the product from that of competitors.
Pricing may be lower because of the new competition.
Distribution channel becomes more intensive and incentives may
be offered to encourage preference over competing products.
Dr. PHEA Vanna 2014

35. Cost leadership &Rivalry (cont.)
D stage_1.failing sales and profits,2.increasing
price competition, and 3.industry consolidation, the
firm has several options:
Maintain the product, possibly rejuvenating (renewing) it by
adding new features and finding new uses(e.g.,iPhone5S &5C..).
Harvest the product - reduce costs and continue to offer it, possibly
to a loyal niche segment(e.g., loyal consume).
Discontinue the product(stop), liquidating remaining
inventory or selling it to another firm that is willing to continue the
product (e.g., Nokia sells to Microsoft Co. in value$7.14B ).
 Marketing mix decisions in the decline phase will depend on the selected strategy. For
example, the product may be changed if it is being rejuvenated, or left unchanged if it is
being harvested or liquidated. The price may be maintained if the product is harvested, or
reduced drastically(решительно) if liquidated.
Dr. PHEA Vanna 2014

36. Cost leadership and the five competitive forces
• Bargaining power of suppliers(O)
– Can more easily absorb price increases from suppliers
due to low-cost structure(e.g., Different supplies)
May force suppliers to hold down prices due to volume
purchasing "ESc" ( JIT concept? _centering on the objective of
Low-cost, Quality and on time production )
Absorb_понимать Dr. PHEA Vanna 2014

37. Cost leadership & five competitive forces(cont.)
• (O)Bargaining power of buyers ( Firm built around
several strengths: Forcing prices lower may force cost leader
out of industry (outside pressures: scope benefit): Not only
for buyers’ best interests ,but firm’s objects want to be:
1) threat to competitors through firm's strengths are
its core competencies include Patents , strong brand
names ,good reputation among customers, cost advantages
from proprietary know-how , exclusive access to high grade
natural resources ,and favorable access to distribution
networks
2)(O)creating monopolistic conditions. So, firm has
several options : Maintain , Harvest and Discontinue the
product._ D. stage)
Dr. PHEA Vanna 2014

38. • Threat of substitutes (T)
– Advantageous lower cost position may insulate from
substitutes, which generally are also guarantee low cost
strategy (1.depend on power of supplies_ ESC _Price-
performance trade-off of substitutes P&S ) and (2.offer
to satisfy the buyers inclination to substitute P&S
with lower priced _ Switching costs )
• Threat of new entrants (T)
– Economies of scale (absolute cost advantages)&
– Established supply chain relationships between firm &
Supplies(from Access to inputs to distribution Outputs_
guarantee offering lower cost , quality and on time production.)
– Capital requirement & Loyal Customers (Brand identity
& owner products) can be effective entry barriers.)..
Dr. PHEA Vanna 2016

39. Generic Strategies and Industry ForcesIndustryIndustry
ForceForce Generic StrategiesGeneric Strategies
Cost Leadership (CL) Differentiation(D) Focus
Entry
Barriers
Ability to cut price in
retaliation deters potential
entrants : Esc. Capital req.
Established supply chain
relationships between firm &
Supplies(from Access to
inputs to distribution
Outputs )
 Increasing a firm's
margins( value chain), DS
avoids the need for a low cost
position: Maintained Quality
outputs&..
 Customer loyalty can
discourage potential entrants. or
Loyal Customers (Brand
identity & owner products)
can be effective entry
barriers.
Focusing develops core
competencies that can act
as an entry barrier.(CL or
D)
Buyer
Power
Ability to offer
lower price to
powerful buyers through
firm's strengths
firms will enjoy high customer
loyalty(higher entry barriers
result) and reduces buyer power
since buyers lack comparable
alternatives products of rivals by
offering the specific quality and
additional features and support
services after selling as rapidly
respond to costumer's request &
replacement parts).
Large buyers have less
power to
negotiate because of few
alternatives.(D)

40. Generic Strategies and Industry ForcesIndustryIndustry
ForceForce Generic StrategiesGeneric Strategies
Cost Leadership (CL) Differentiation(D) Focus
Supplier
Power
Better insulated
from powerful
suppliers due to volume
purchasing "ESc"
DS helps a firm to deal with
supplier power(Outsourcing
purchase of high quality
components to enhance product
image )
Suppliers have power
because of low volumes,
but a differentiation
focused firm is better able
to pass on supplier price
increases.(D)
Threat of
Substitutes
Can use low price to
defend against
substitutes. 1)Price-
performance trade-off of
substitutes &
2)Switching costs
Customer's become
attached to differ-ating attributes
(e.g. high quality, reputation), reducing
threat of substitutes. So, DS
enhances customer loyalty and
unique features(ways of
differentiating forms international
strategies : e.g., Toyota ;
Specialized products &
core competency protect
against substitutes.(D)

41. Generic Strategies and Industry Forces
IndustryIndustry
ForceForce Generic StrategiesGeneric Strategies
Cost Leadership
(CL)
Differentiation(D) Focus
Rivalry
Better able to compete
on price. Strategy in
the Maturity & Decline
phase
Best choices to gain a longer-
lasting, more profitable
competitive edge :
New product innovation &
Technical superiority
Product quality and reliability
Comprehensive customer
service(e.g., Outstanding Toyota
services)
Unique competitive
capabilities(e.g., the firm's ability to
utilize its resources effectively )
Rivals cannot meet
differentiation focused
customer needs(less
rivalry & Established
market _CL&D).:
 Choose a market niche
where buyers have
distinctive preferences,
special requirements, or
unique needs,
Develop unique
capabilities to serve needs
of target buyer
segment).E.g., Cam target
buyers: 80% is lower vs
20% higher levels.

42. Combining strategies(Advantages)
• Integrating overall cost leadership and differentiation:
– Generally more difficult to imitate(Limited ability to
adapt to local markets from international competitors)
– Providing unique value efficiently(e.g. superior quality
can lead to lower costs : reduced need for customer
service personnel to resolve customer complaints and
less need for rework in manufacturing,….._ rapid
response to customers’ service requests)
– Successful combination of both strategies provides two
sources of value to customers(Price & Q):
Differentiated attributes(e.g. high quality, brand identification
and reputation )
Lower prices(lower costs in value-creating activities PA&SA)
Dr. PHEA Vanna 2012

43. Combining strategies
• Three approaches
1. Automated and flexible manufacturing systems can lead
to “mass customization _ small quantities at lower
costs&широкая приспособляемость к требованиям заказчиков”
2. Exploiting profit pool(Niche) by offering
complementary products(the firm produces its own
inputs& distributes its outputs : McDonalds owns the
final restaurant(Firm provides lower costs and ensure
final quality to customers).
3. Extending value along(together with) the supply chain
(e.g., Wal-Mart’s supplier links and in-house transportation
system )
Dr. PHEA Vanna 2012

44. Industry life cycle stages
Dr. PHEA Vanna 2010Source: Dess et al., 2008, p. 178
• Four distinct phases: introduction, growth, maturity, decline _This sequence is
known as the product life cycle and is associated with changes in the marketing
situation, thus impacting the marketing strategy and the marketing mix.
• The product revenue and profits can be plotted as a function of the life-cycle
stages as shown in the graph:

45. CHAPTER 5
McGraw-Hill/Irwin Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved.
STRATEGIC MANAGEMENT  Gregory G. Dess and G. T. Lumpkin
Stages of the Industry Life Cycle
Overall Cost
Leadership
Focus
Differentiation
Overall Cost
Leadership
DifferentiationDifferentiationGeneric Strategies
Consolidate, Maintain,
Harvest, or Exit
Defend Market Share
and Extend Product
Life Cycles
Create Consumer
Demand
Increase Market Awareness
Overall
objective
General Management and
Finance
ProductionSales and MarketingResearch and DevelopmentMajor functional
area(s) of concern
LowHighLow to ModerateLowEmphasis on process
design
LowLow to ModerateHighVery HighEmphasis on product
design
ChangingVery IntenseIncreasingLowIntensity of
competition
FewManySomeVery FewNumber of segments
NegativeLow to ModerateVery LargeLowMarket growth rate
DECLINEGROWTHINTRODUCTIONSTAGE MATURITY
FACTOR
Exhibit 5.8
TRANSPARENCY-49

46. Introduction
• Slow growth (low sales grow , new products that are not
known to customer_ poorly defined market segment )
• High prices (Monopoly condition)
• Technical know-how in rare supply, source of
temporary advantage (rapid technological change and
operating losses & need for financial support)
• May result from one firm’s innovation (e.g.,
Apple Co: Ipaid ,IPhone ……)
Dr. PHEA Vanna 2010

47. Growth
• First-time use expands rapidly ( strong increases in sales)
• Prices begin to fall (growing competition)
• Diffusion of technical know-how increases threat
of new entrants (developing brand recognition)
• Rapid growth means low competitive pressure
(need for financing complementary value chain activities such as
marketing ,sales , customer service and R&D.)
 diffusion process_ процесс распространения (новой продукции)
Dr. PHEA Vanna 2010

48. Maturity
• Demand driven by replacements not first time
adoption (stage_1.slowing demand growth and
2.saturate markets )
• Competition for market share drives down prices
(3.direct competition, 4. price competition)
• Firms strive to reduce costs, build brand loyalty
• Industry consolidation {(mergers and acquisitions
(purchase)}
Dr. PHEA Vanna 2010

49. Decline
• Negative growth (changes in technology, social
tastes/preferences, demographics, international
competition)
• Increased rivalry
• Excess capacity, exit barriers lead to price
competition
 D stage_1.failing sales and profits, 2.increasing price
competition , and 3.industry consolidation
Dr. PHEA Vanna 2010