Chapter 6 : Strategy
Strategy is an action managers take to attain a goal of an organization. Superior
performance requires High profitability Growth in profits over time
Wal-Mart :
• First year of operation – 1962 – Rogers, Arkansas
• 1960s – 15 Wal-Mart stores
• 1979-80 – 276 stores with $1 billion in sales
• 1989 – 1,400 stores with $26 billion in sales
• 1983 – SAM’s Club
• 1988 – Supercenters
• Today -- More than 1.8 million associates worldwide, nearly 6,500 stores and
wholesale clubs across 15 countries, and over $312 billion in sales.
Competitive Advantage
Competitive advantage advantage obtained when a firm outperforms its rivals.
Distinctive competency: a unique strength that rivals lack.
Sustainable competitive advantage A distinctive competency that rivals cannot
easily match or imitate.
Barrier to imitation Factors that make it difficult for a firm to imitate the
competitive position of a rival.
Legacy constraints Prior investments in a particular way of doing business that are
difficult to change and limit a firm’s ability to imitate a successful rival.
Competitive Advantage
Distinctive competencies (If protected from copying by barriers to imitation and
legacy constraints competitive advantage will be sustained) Competitive Advantage
Low costs and Product differentiation Superior performance
Business-Level Strategy
Business-level strategy Strategy concerned with deciding how a firm should compete
in the industries in which it has elected to participate.
Low-cost strategy Focusing managerial energy and attention on doing everything
possible to lower the costs of the organization.
Economies of scale Cost advantage derived from a large sales volume.
Differentiation strategy Increasing the value of a product offering in the eyes of
consumers.
Segmenting the Market
Markets are characterized by different types of consumers. Some are wealthy, some are
not. Some are old, some are not. Some are influenced by popular culture, some never watch
TV. Some care deeply about status symbols, others do not. Some place a high value on
luxury, some on value of money.
Consumer Markets
Consumer markets segmentation characteristics:
• Geographic
• Demographic
• Psychographic
• Behavioralistic
Choosing Segments to Serve
1. Focus Strategy: Serving a limited number of segments.
2. Broad market strategy: Serving the entire market.
Configuring the Value Chain
Primary activities Activities having to do with the design, creation, and delivery of the
product; its marketing; and its support and after sales services.
Support activities Activities that provide inputs that allow the primary activities to
occur.
Organization architecture The operations of the firm are embedded within the internal
organization architecture of the enterprise, which includes the organization structure,
incentives, control systems, people, and culture of the firm.
Competitive tactics Actions that managers take to try to outmaneuver rivals in the
market.
Tactical pricing decisions:
- Price war
- Price signaling
- Razor and razor blade pricing
Tactical Product decisions:
- Product proliferation
- Bundling
Price Wars and Signaling
• Pepsi vs. Coca-cola
• Cellular phones
• Internet services
• Long distance call rates
Corporate-Level Strategy
Corporate-level strategy Strategy concerned with deciding which industries a firm
should compete in and how the firm should enter or exit industries.
Vertical integration Moving upstream into businesses that supply inputs to a firm’s
core business or downstream into businesses that use the outputs of the firm’s core business.
Is Disney (a diversified entertainment company) vertically integrated?
- Domestic and international cable networks
- TV production and distribution
- Internet and mobile operations
- Theme parks, hotels, restaurants, and cruise line
- Animated motion pictures and licensing
- Disney Stores and Web sites
Diversification
Diversification Entry into new business areas.
Related diversity Diversification into a business related to the existing business
activities of an enterprise by distinct similarities in one or more activities in the value chain.
Unrelated diversity Diversification into a business not related to the existing business
activities of an enterprise by distinct similarities in one or more activities in the value chain.
