1. Chapter Five
Business-Level
Strategy:
Creating and
Sustaining
Competitive
Advantages
Reporters:
Cayude, Jeisa Ferogene
Darnayla, Alvie
Lim, John Michael
Mendez, Ria Beth
Rosales, Louie Patrick
Teves, Charlston

2. This chapter focuses on:
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3. 1st Generic Strategy
• Overall cost leadership
 Low-cost-position relative to a firm’s peers
 Manage relationships throughout the entire value
chain
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4. Overall Cost Leadership
Tight set of interrelated tactics that include:
•Aggressive construction of efficient-scale facilities
• Vigorous pursuit of cost reductions from experience
• Tight cost and overhead control
• Avoidance of marginal customer accounts
• Cost minimizing in all activities in the firm’s value chain, such
as R&D, service, sales force, and advertising
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5. Overall Cost Leadership
• Experience curve
 refers to how business “learns” to lower costs as
it gains experience with production processes
 with experience, unit costs of production decline
as output
increases in most
industries
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6. Overall Cost Leadership
• Parity on the basis of differentiation
 Permits a cost leader to translate cost
advantages directly into higher profits than
competitors
 Allows firm to earn above-average profits
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7. 7

8. Overall Cost Leadership
Improving Competitive Potential Pitfall
Position vis-à-vis the
Five Forces  too much focus on one or few
value chain-activities
 all rivals share a common input or
 overall low cost-position raw material
enables a firm to achieve  the strategy is imitated so easily
above-average returns  erosion of cost advantages when
despite strong competition the pricing information available to
customers increases
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9. 2nd Generic Strategy
• Differentiation
 Create products and/or services that are unique
and valued
 Non-price attributes for which customers will pay
a premium
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10. Differentiation
• Prestige or brand image
• Technology
• Innovation
• Features
• Customer service
• Dealer network
 Firms achieve and sustain differentiation advantages and attain
above-average performance when their price exceed the extra
costs incurred in being unique.
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11. Value Chain Activities:
Differentiation
Firm Infrastructure Superior MIS – to integrate Facilities that Widely respected CEO
value-creating activities to promote firm enhances firm
improve quality image reputation
Human Resource Programs to attract talented Provide training and incentives to ensure a
Management engineers and scientists strong customer service orientation
Technology Superior material handling and Excellent applications engineering
Development sorting technology support
Purchase of high-quality Use of most prestigious outlets
Procurement components to enhance product
image
Superior Flexibility and Accurate and Creative and Rapid response
material speed in responsive innovative to customer
handling responding to order advertising service
operations to changes in processing programs requests.
minimize manufacturing
damage specifications
Effective product Fostering of
replenishment to personal Complete
Quick transfer Low defect rates reduce customer’ s relationship inventory of
of inputs to to improve quality inventory with key replacement
manufacturing customers parts and
process supplies
Inbound Operations Outbound Marketing Service
Logistics Logistics Sales

12. Differentiation
Improving Competitive Potential Pitfall
Position vis-à-vis the
Five Forces  uniqueness that is not valuable
 too much differentiation
 achieving differentiation is  too high price premium
a viable strategy for earning  differentiation that is easily
above-average returns by imitated
creating a defensible  dilution of brand identification
position for overcoming through product-line extensions
Porter’s five competitive  perceptions of differentiation
may vary between buyers and
forces
sellers
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13. Potential Pitfalls of Differentiation Strategies
1. Uniqueness that is not valuable. A differentiation strategy must
provide unique bundles of products and/or services that
customers highly value.
2. Too much differentiation. Firms may strive for quality or
service that is higher than customer’s desire. Thus they are
vulnerable to competitors who provide an appropriate level of
quality at a lower price.
3. Differentiation that is easily imitated. Resources that are
easily intimidated cannot lead to sustainable advantages.
4. Dilution of brand identification through product line
extensions. Firms may erode their quality brand image by
adding products or services with lower prices and less quality.
5. Perception of differentiation may vary between buyers and
sellers.
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14. 3rd Generic Strategy
• Focus Strategy
 Narrow product lines, buyer segments, or
targeted geographic markets
 Attain advantages either through differentiation
or cost leadership
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15. Focus
• Focus is based on the choice of a narrow
competitive scope within an industry
 Firm selects a segment or group of segments
(niche) and tailors its strategy to serve them
 Firm achieves competitive advantages by
dedicating itself to these segments exclusively
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16. Focus
Cost Focus Differentiation Focus
 firms strives to create  firm seeks to
a cost advantage in its differentiate in its
target segment target market
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17. Focus
Improving Competitive Potential Pitfall
Position vis-à-vis the
Five Forces  erosion of cost advantages
within the narrow segment
 even product and service
 firms pursuing a focus offerings that are highly focused
strategy can earn above- are subject to competition from
new entrants and from imitation
average returns
 focusers can become too focused
to satisfy buyer needs
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18. Three Combination Approaches
• Automated and flexible manufacturing
systems
• Exploiting the profit pool concept for
competitive advantage
• Coordinating the “extended” value chain by
way of information technology
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19. Integrated Overall low cost and
Differentiation Strategies
Improving Competitive Potential Pitfall
Position vis-à-vis the
Five Forces  firms that fail to attain both
strategies may end up with neither
and become “stuck in the middle”
 create an enviable position  underestimating the challenges and
relative to industry forces express associated with coordinating
value-creating activities in the
 serves to erect high entry extended value chain
barriers to potential competitors  miscalculating sources of revenue
that have neither the financial nor and profit pools in the firm’s industry
physical resources to compete
head to head
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20. Industry Life-Cycle Stages:
Strategic Implications
• Industry life cycle
 refers to the stages of introduction, growth,
maturity, and decline that occur over the life
of an industry
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21. Industry Life-Cycle Strategies
In the Introduction Stage:
• Products are unfamiliar to consumers
• Market segments not well defined
• Product features not clearly specified
• Competition tends to be limited
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22. Industry Life-Cycle Strategies
The Growth Stage is:
• Characterized by
strong increases in
sales
• Attractive to potential
competitors
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23. Industry Life-Cycle Strategies
For the Growth Stage:
• Brand recognition
• Differentiated products
• Financial resources to support value-chain
activities
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24. Industry Life-Cycle Strategies
In the Maturity stage:
• Aggregate industry demand slows
• Market becomes saturated, few new
adopters
• Direct competition becomes predominant
• Marginal competitors begin to exit
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25. Industry Life-Cycle Strategies
In the Decline Stage:
• Industry sales and profits begin to fall
• Strategic options become dependent on
the actions of rivals
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26. Strategies in the Decline Stage
For the Decline Stage
• Maintaining
• Exiting the market
• Harvesting
• Consolidation
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27. Turnaround Strategies
It is more likely to occur during the maturity
or decline stage
 Asset and cost surgery
 Selective product and marketing pruning
 Piecemeal productivity improvements
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28. THANK YOU! 
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