Discussion Question 20: Would customers be willing to pay higher prices for such
customized services?
Discussion Question 21: Do you believe that this approach might fit a majority or a
minority of firms that seek consulting services? What type of firms (and what type of
industries) may be more interested?
2. Potential Pitfalls of Focus Strategies
The section closes by addressing some of the pitfalls of a focus strategy. These are:
Erosion of cost advantages within the narrow segment.
Even product and service offerings that are highly focused are subject to
Focusers can become too focused to satisfy buyer needs.
D. Combination Strategies: Integrating Overall Low Cost and Differentiation
There has been a great deal of evidence—in both observation of business practice as well
as in research studies—about the strategic benefits of competitive positioning and resultant
In general, the key benefit to be enjoyed by firms that successfully integrate low cost and
differentiation strategies is that it is generally harder for competitors to duplicate or imitate them.
We next address three approaches that combine overall cost leadership and
differentiation.
1. Automated and Flexible Manufacturing Systems
Given the advances in manufacturing technologies such as CAD/CAM, as well as
We provide the example of Andersen Windows in Bayport, Minnesota—a $2.3 billion
manufacturer of windows for the building industry. Among the benefits are that the system is
2. Using Data Analytics
Firms are increasingly using the ability to analyze large sets of data on customer
3. Exploiting the Profit Pool Concept for Competitive Advantage
A profit pool can be defined as the total profits in an industry at all points along the
We provide the example of buyback insurance in the consumer electronics industry to
illustrate the profit pool concept in STRATEGY SPOTLIGHT 5.5. Here, we present the idea that
Discussion Question 22: What are some other examples of firms that generate higher
returns by identifying and leveraging opportunities by expanding their scope of
operations to capture more of the overall profit pool?
Our discussion of the profit pool concept can be illustrated more compellingly to the class
by emphasizing that this applies to virtually every industry. The SUPPLEMENT below describes
Extra Example: Rolls-Royce Sells Services
Rolls-Royce has traditionally been a maker of airline jet engines. Given the growth in long-haul plane orders, which
use the firm’s engines in Asia, as well as rebound in jet orders in the United States, the firm has seen improved sales
and strong earnings over the last few years. For example, its net income exceeded $1B a year in 2011, 2012, and
2013. The company is in a strong competitive position, supplying engines to both the major jet manufacturers,
Boeing and Airbus. For some of these firms’ models, they are the sole supplier of engines.
But Rolls-Royce is changing the way it does business to extract more of the potential profit from the aircraft engine
business. Profits used to come primarily from selling engines and replacement parts. Now, they come from
providing long-term repair and maintenance. Rolls is steadily signing up customers for this sort of service. Margins
are typically higher for service than for hardware sales. Customers value these services since they offer peace of
mind that Rolls will keep the engines running.
However, if the economy declines again and airlines cut flights and aircraft orders, Rolls-Royce could be in a tough
position since this will cut the need for both new hardware and services.
Source: Anonymous. 2010. Rolls-Royce: The jet engine maker is soaring above its troubles. The Economist.
February 5: 76; hoovers.com.
Discussion Question 23: Can you think of other industries where firms can benefit by
applying the profit pool idea?
Discussion Question 24: By exploiting the profit pool along the industry’s value chain, is
Rolls-Royce taking too high a level of risk? Do they have more control over how their
engines are maintained, therefore lowering their risk and increasing profits? Support
your answer.
Teaching Tip: The profit pool concept and the example of the electronics retailing
industry we provide are helpful in reinforcing to the students that the share of revenues
within an industry will typically not be equivalent to the share of profits in an industry.
3. Coordinating the ‘Extended’ Value Chain Via Information Technology
Many firms have achieved success by integrating activities throughout the “extended
value chain” by using information technology to link their own value chain with the value chains
We discuss Walmart and how it has been able to combine differentiation (e.g., quick
response to customer demand) and overall cost leadership to become the dominant mass retailer
4. Integrated Overall Cost Leadership and Differentiation Strategies:
Improving Competitive Position vis-à-vis the Five Forces
We next address how an integrated overall cost leadership and differentiation strategy
5. Pitfalls of Integrated Overall Low Cost and Differentiation Strategies.
Firms that attain both types of competitive advantage enjoy high returns. However, as
with each generic strategy taken individually, there are some pitfalls to avoid:
Firms that fail to attain both strategies may end up with neither and become
Underestimating the challenges associated with coordinating value-creating
Miscalculating sources of revenue and profit pools in your industry.
II. Can Competitive Strategies Be Sustained? Integrating and Applying
Strategic Management Concepts
In this section we integrate many of the key concepts in the first five chapters:
stakeholder analysis, external environmental analysis, five-forces analysis, value-chain analysis,
The Atlas Door example provides an opportunity for students to get a more thorough
understanding of the aforementioned key concepts, as well as provides some insights on whether
You might find it interesting to pose some very general questions to the class such as
III. Industry Life Cycle Stages: Strategic Implications
The life cycle of an industry refers to the stages of introduction, growth, maturity, and
decline that occur over the life of an industry. In considering the industry life cycle, it’s useful to
Why is it important to consider industry life cycles? The emphasis on various generic
strategies, functional areas, value-creating activities, and overall objectives vary over the course
EXHIBIT 5.6 depicts the four stages of the industry life cycle and how factors such as
Be sure to point out an important caveat regarding the key limitation of the industry life
cycle concept. That is, products and services go through many cycles of innovation and renewal.
Teaching Tip: In the textbook, we discuss what may be considered as the “generic”
industry life cycle. Ask students for examples of how technological or product market
innovations have abruptly truncated or extended an industry’s life cycle. (Examples
Next, we address each of the four stages of the industry life cycle.
A. Strategies in the Introduction Stage
In the introduction stage, products are unfamiliar to consumers. Market segments are not
well defined and product features are not clearly specified. The early development of an industry
There’s an advantage to being a “first mover” in the market. We address the examples of
Discussion Question 25: What are some other firms that benefited from being a “first
mover” in their industry?
However, there are also benefits to being a “late mover.” We address how Target
The SUPPLEMENT below addresses some of the advantages to being a late mover in the
context of international business.
Extra Example: The Advantages of Being a Late Mover
Emerging multinationals often exploit late-mover advantages in one of two ways. Some start by benchmarking the
established global players and then maneuvering around them, often by exploiting niches that the larger companies
had overlooked. Other companies adopt an alternative, though riskier strategy. They use their newcomer status to
challenge the rules of the game, capitalizing on the inflexibilities in the existing players’ business models.
Source: Bartlett, C. A. & Ghoshal, S. 2000. Going global: Lessons from late movers. Harvard Business Review,
78(2): 138.
B. Strategies in the Growth Stage
The second stage of the industry life cycle, growth, is characterized by strong increases in
sales. The potential for strong sales (and profits) attracts other rivals who also want to benefit.
Revenues in the growth stage increase at an accelerating rate because (1) new consumers
are trying the product, and (2) a growing proportion of satisfied consumers are making repeat
Discussion Question 26: What are some examples of products/industries in the growth
stage of their life cycle? How long do you think the growth stage will last?
C. Strategies in the Maturity Stage
In the third stage, maturity, aggregate industry demand begins to slow. Since markets are
becoming saturated, there are few opportunities to attract new adopters. Since it is no longer
We address the example of the intense competition between Unilever and Procter and
Gamble in the laundry soap business. This slow growth business in the maturity stage puts
The SUPPLEMENT below provides examples of how General Mills continues to renew a
very established brand with new versions of its flagship cereal, Cheerios.
Extra Example: Cheerios New Flavors
General Mills introduced the Cheerios brand of cereal in 1941 and has seen it take on a central position in the
breakfast food market. The Cheerios brand accounts for 13% of all cold cereal sold in the United States, over twice
the share of its nearest competitor. Although the brand is over 70 years old, General Mills has not accepted that the
growth potential for the mature brand is over, and it continues to spin out new variants of the venerable cereal to
stoke up new demand. There are now 13 different varieties of Cheerios, with five new types of Cheerios introduced
after 2007. The latest to arrive are Dulce de Leche and Multi Grain Peanut Butter Cheerios. By extending the brand
with new flavors, General Mills has found a way to generate modest growth in a very mature market. For example,
Chocolate Cheerios, introduced in 2010, has been a very successful launch and added to sales by adding a chocolate
flavor to the family-cereal market. Prior to this launch, chocolate-flavored cereals were largely limited to the kids’
cereal market.
There is one additional benefit to launching new versions of established brands. Every new version of Cheerios on
the shelf represents an inch of territory extracted from some other brand. Shelf space is so tight in retail stores these
days that each Cheerios product has the potential to take the shelf space of competing cereal brands.
Source: Hughlett, M. 2012. General Mills makes Cheerios a serial business. Startribune.com. March 3: np.
Discussion Question 27: What are some industries in the maturity phase of the life
cycle? How intense is the competition? How difficult is it to differentiate products and
services?
Two positioning strategies that managers can use in the maturity stage include
a) Reverse positioning—a change in industry tendencies to continuously improve products by
b) Breakaway positioning—a break in industry tendencies to incrementally improve by
STRATEGY SPOTLIGHT 5.6 provides two examples of firms that made such changes
during the maturity stage of the life cycle. Commerce Bank used reverse positioning to set itself
Discussion Question 28: What are some examples of other companies that used
breakaway or reverse positioning strategies to distinguish themselves from other
companies in their industry?
Discussion Question 29: What are some of the risks associated with breaking away from
other similar companies in an industry? What are the benefits?
D. Strategies in the Decline Stage
Decisions in the decline phase of the industry life cycle become particularly important.
There are four basic strategies available in the decline phase: maintaining, harvesting,
exiting, or consolidating.
Maintaining refers to keeping a product going without significantly reducing marketing
Harvesting involves obtaining as much profit as possible and requires that costs in the
Exiting the market involves dropping the product from a firm’s portfolio.
Consolidating involves one firm acquiring the best of the surviving firms in an industry
Discussion Question 30: What are some examples of industries in the decline stage?
What strategies are the incumbent firms following?
We also address three ways in which old technologies can enjoy a “last gasp” in the
E. Turnaround Strategies
We discuss three turnaround strategies:
Asset and cost surgery;
Discussion Question 31: Can you think of other successful (or unsuccessful)
turnarounds? (Note: It might be interesting to get their perspectives on General Motors
and Chrysler as they have rebounded from bankruptcy.)
STRATEGY SPOTLIGHT 5.7 discusses Mindy Grossman’s successful turnaround at HSN.
Discussion Question 32: What do you think was the most important element of her
turnaround plan? Why? Any other suggestions to extend HSN’s turnaround?
I V. Issue for Debate
The case points out that finding the right balance in strategic positioning is challenging. While
firms have to ultimately choose if they are striving to differentiate or be a cost-leader, as well as
JetBlue is a firm that is struggling with finding the right balance. Historically, JetBlue
In recent years, JetBlue has seen its costs rise, threatening to limit its ability to offer low
priced tickets. At the same time, it has seen greater competition at the low price end of the
JetBlue has responded by abandoning its single level of service model, offering greater
service level for business travelers and squeezing more seats into its coach section for budget
Discussion Question 33: Is it wise for JetBlue to change its strategy to become more like
Delta, American, and United?
This is kind of a trick question in that JetBlue likely had to change in some way. It is just not
clear it chose the right path. JetBlue was unlikely to be able to continue with its prior strategy.
The firm likely needed to choose to focus more exclusively on cost or differentiation.
Some students may argue it would face fewer competitors if it pursued a low-cost strategy.
Other students will argue that JetBlue should pursue the differentiation angle. However, it
is not clear how its current course will leave the firm differentiated. It simply appears to be
While there is not a clear obvious path for JetBlue, it is important to push the students to
Discussion Question 34: What are the risks and benefits of this change?
The primary benefit is that JetBlue avoids getting stuck in a damaging price war with the very
low-cost airlines, a war it would unlikely win. The strategy change also allows JetBlue to tailor
its service offerings to meet different customer needs and also develop a tiered pricing structure
Discussion Question 35: What does JetBlue need to do to retain its distinctiveness in
customers’ eyes?
At this point, it may make sense to ask the students to discuss their experiences on different
airlines. In what ways are airlines similar? In what ways are they different? What has made
VI. Reflecting on Career Implications
Below, we provide some suggestions on how you can lead the discussion on the career
implications for the material in Chapter 5.
Types of Competitive Advantage: Are you aware of your organization’s business-level
strategy? What do you do to help your firm either increase differentiation or lower costs?
Can you demonstrate to your superiors how you have contributed to the firm’s chosen
business-level strategy?
This would be an opportunity for the student to see if his or her own actions at work are leading
to competitive advantage for the firm. Although, at first sight, this might be appear to be difficult
for the student to figure out, we find it to be quite easy to walk the student through his/her
Types of Competitive Advantage: What is your own competitive advantage? What
opportunities does your current job provide to enhance your competitive advantage? Are
you making best use of your competitive advantage? If not, what organizations might
provide you with better opportunities for doing so? Does your resume clearly reflect your
competitive advantage? Or are you “stuck in the middle?”
Since students are unlikely to stay with the same company or in the same position for their entire
career, it is important for students to think about how they are positioning themselves.
Specifically, push students to consider how their training and experiences can help them
Understanding your Differentiation: When looking for a new job or for advancement
in your current firm, be conscious of being able to identify what differentiates you from
Once you have walked the student through Question 2, this question would become more
Industry Life Cycle: Before you go for a job interview, identify the life cycle stage of
the industry within which your firm is located. You are more likely to have greater