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Part 2:Strategic Choices
Exploring Corporate Strategy 8e, © Pearson Education 2008 6-2
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 6-3
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
Strategic Choices5: Business-Level Strategy
Exploring Corporate Strategy 8e, © Pearson Education 2008 6-5
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 6-6
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 6-7
Exhibit 6.1 Business-Level Strategies
Exploring Corporate Strategy 8e, © Pearson Education 2008 6-8
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 6-9
Exhibit 6.2 The Strategy Clock
Exploring Corporate Strategy 8e, © Pearson Education 2008 6-10
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 6-11
EasyJet’s No Frills Strategy (1)
Exploring Corporate Strategy 8e, © Pearson Education 2008 6-12
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 6-13
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 6-14
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
Exploring Corporate Strategy 8e, © Pearson Education 2008 6-16
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 6-17
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 6-18
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 6-19
Exhibit 6.3 Sustaining Competitive Advantage
Sustainablecompetitiveadvantage
Price-based strategies
Lock-in
Differentiation
Exploring Corporate Strategy 8e, © Pearson Education 2008 6-20
Achieving Low Prices
Operate with lowermargins
Develop a unique cost structure
Create efficiency inorganisational
capabilities
Focus on market segments with
low expectations
Exploring Corporate Strategy 8e, © Pearson Education 2008 6-21
Ryanair
Exploring Corporate Strategy 8e, © Pearson Education 2008 6-22
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 6-23
Ways of attempting to Sustain Advantage through Differentiation
Create difficultiesof imitation
Create a situation of imperfect mobility
Establish a lowercost position
Exploring Corporate Strategy 8e, © Pearson Education 2008 6-24
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.
Exploring Corporate Strategy 8e, © Pearson Education 2008 6-29
Exhibit 6.7 A Prisoner’s Dilemma
Exploring Corporate Strategy 8e, © Pearson Education 2008 6-30
Case Example: Madonna
Describe and explain Madonna’s competitive strategy.
Why has she experienced sustained success?