The business-level strategies (cost leadership, differentiation, focused cost leadership, focused differentiation and integrated cost leadership/differentiation)

Résumé du document

Big Lots Inc. can be taken as an example of a firm using a cost leadership strategy. This firm is the largest broadline closeout discount chain in the United States. It sells name-brand products which are less expensive than a discount retailer (35% less). Big Lots Inc. purchases its goods from foreign countries. The firm tries to decrease its costs in identifying various business / management approaches to satisfy the needs of its customers. Firms using this strategy use the value chain analysis to determine which part of its activity create value and which one doesn't create value. The firm may decide to get rid of some part of its activity in function of the result of this analysis as this will permit to reduce costs.

Extraits

[...] The target of this type of firms is customers who value differentiation more than low prices. This strategy has as competitive advantage the uniqueness and broad target as competitive scope. As an example, Lexus proposes goods with a high level of quality and that makes the difference: people are different with this kind of vehicle because products have unique attributes. If a firm decides to sell a product that the price exceeds the cost of creating, it could be a way of differentiation and the firm can earn above- average returns. [...]

[...] Ikea thinks that these services and products are uniquely aligned with the needs of customers. Ikea proposes some differentiated products at a low price. The Focused differentiation: This strategy has as characteristics Uniqueness as Competitive advantage and Narrow target as Competitive Score. Firms decide to differentiate their products. Take the example of Casketfurniture.com. It is an Internet furniture venture. The target of this firm is people who are interested in buying goods in the Internet. The firm wants to propose high quality products to its customers. [...]

[...] In term of competitors, some studies show that customers of firms which use the differentiation strategy tend to be loyal purchasers. The more the loyalty to a firm increases, the more customers' sensitivity to price increases decreases. It is a very important advantage for differentiators because they keep their customers and they are able to increase prices. Louis Vuitton is a good example of this kind of firms: customers who bought a Louis Vuitton wallet would probably buy another wallet to the same brand even thought its price is higher. [...]

[...] In conclusion, it can be said that each strategy is possible and may make benefits. But it depends on the customers target of the firm and on the strategy of development of each firm. Each strategy has risks and opportunities, the firm must choice the best one, the one which will lead to the success Bibliography Hitt, Hoskisson and Ireland (2007) Management of Strategy, Concepts and Cases, China: Thomson South-Western Business Level Strategy Analysis [online]. [...]

[...] The first is that a rival may focus on a more narrowly defined competitive segment and the result is that is “outfocuses” the focuser. The second risk is that another company finds the focuser segment pr target interesting and tries to enter in. For example Gap Inc. who decided to launch a new collection for a new target which is the same as Anne Fontaine. Gap Inc. is a very famous brand and Anne Fontaine will suffer from this new entrant. [...]