Chapter 4: Business-Level Strategy
Global furniture retailer IKEA provides customers with “good design and function at low
prices” through use of the focused cost leadership strategy. IKEA does this by offering
low-cost, modular furniture (assembled by customers) and using self-service as an
Focused Differentiation Strategy
Firms following focused differentiation strategies produce customized products for small
market segments.
They can be successful when either the quantities involved are too small for industry-wide
Teaching Note
Other examples of focused differentiators include the following:
• Upscale apartment buildings in various locations are being designed to serve the needs
of technologically savvy city dwellers, offering differentiated features such as high-
speed digital Internet access and other sophisticated telecommunications services.
• Manufacturers such as Ferrari, Aston Martin, and Lamborghini compete in the tiny
Chapter 4: Business-Level Strategy
STRATEGIC FOCUS
What Type of Hamburger Would You Like to Buy and Eat Today?
It is surprising how many hamburger chains are using a differentiation strategy, given that
they’re all offering the same basic products—hamburgers and fries. However, as these
Teaching Note
Students should be eager to participate in a discussion of the “best” burgers in their
Competitive Risks of Focus Strategies
The competitive risks of focus firms are similar to those previously noted for the cost
leadership and differentiation strategies with the following additions:
• Competitors may successfully focus on an even smaller segment of the market,
“outfocusing” the focuser, or focus only on the most profitable slice of the focuser’s
chosen segment.
Teaching Note
As an example, Confederate Motor Co. produces a highly differentiated motorcycle
• An industry-wide competitor may recognize the attractiveness of the segment served by
the focuser and mobilize its superior resources to better serve the segment’s needs.
Chapter 4: Business-Level Strategy
4-4d Integrated Cost Leadership/Differentiation Strategy
This hybrid strategy may become even more important—and more popular—as global
competition rises.
Successfully pursuing the integrated cost leadership/differentiation strategy yields
additive benefits such as the following:
• Differentiation enables the firm to charge premium prices.
Flexible Manufacturing Systems
A flexible manufacturing system is a computer-controlled process used to produce a
Information Networks
Information networks enable a firm to coordinate interdependencies between internally
and externally performed value-creating activities to increase flexibility and
Chapter 4: Business-Level Strategy
determine the trade-offs its customers are willing to make between differentiated features
and low cost, which is vital for companies using the integrated cost
leadership/differentiation strategy.
Enterprise Resource Planning Systems: A Mini-Lecture
Enterprise resource planning (ERP) is an information system used to identify and
plan the resources required across the firm to receive, record, produce, and ship
Improving efficiency on a company-wide basis is a primary objective of using an
ERP system. Efficiency improvements result from the use of systems through
which financial and operational data are moved rapidly from one department to
Total Quality Management Systems
Total quality management (TQM) systems have been established to improve product
quality (from a customer perspective) and to improve productivity in the performance of
the internal value-creating activities.
Chapter 4: Business-Level Strategy
Teaching Note
Total quality management (TQM) systems are based on the following key assumptions:
• The costs of poor quality exceed the costs of developing processes that produce high-
quality products and services (in other words, it is less costly to do things right the first
time).
Competitive Risks of the Integrated Cost Leadership/Differentiation Strategy
This is an appealing yet risky strategy, as it is difficult for firms to perform primary and
support activities in ways that allow them to produce relatively inexpensive products with
ANSWERS TO REVIEW QUESTIONS
1. What is a business-level strategy?
Business-level strategy (the focus of Chapter 4) is an integrated and coordinated set of
commitments and actions designed to provide value to customers and gain a competitive
Chapter 4: Business-Level Strategy
2. What is the relationship between a firm’s customers and its business-level strategy
in terms of who, what, and how? Why is this relationship important?
The relationship between a firm’s customers and its business-level strategy is that, to
survive and achieve strategic competitiveness, firms must create value that satisfies some
3. What is a business model and how do business models differ from business-level
strategies?
A business model describes what a firm does to create, deliver, and capture value for its
4. What are the differences among the cost leadership, differentiation, focused cost
leadership, focused differentiation, and integrated cost leadership/differentiation
business-level strategies?
Strategy Source(s) of Competitive Advantage
Cost Leadership
Lowest cost with a level of product features or
Chapter 4: Business-Level Strategy
5. How can firms use each of the business-level strategies to position themselves
favorably relative to the five forces of competition?
Strategy Dealing with the Five Forces of Competition
Cost Leadership
Can compete against rivals on price
Can price below rivals to interest buyers
Chapter 4: Business-Level Strategy
6. What are the specific risks associated with using each business-level strategy?
Strategy Risk(s) of Selecting and Implementing
Cost Leadership
Minimal investment in technology could result in
process obsolescence; firm misses change in
competing on an industry-wide basis may decide
that the segment served by the focus strategy firm is
attractive and pursue that segment; the needs of
customers within the narrow segment may become
more similar to all customers in the market,
reducing or eliminating the advantages of a focus
strategy
Chapter 4: Business-Level Strategy
MINI CASE
Hain Celestial Group: A Firm Focused on “Organic” Differentiation
Note: To prepare students for class discussion and to introduce them to the
fundamentals of the Strategic Management process, each chapter Mini-Case is
food firms such as Kraft Foods, Campbell Soup Company, and J.M. Smucker Company
that have not focused as intensely on this natural segment have stalled their earnings, in
part because they have not focused on the natural and organic trend desired by consumers
as much as Hain Celestial. While larger brands seek to modify existing products by
removing less natural ingredients (Nestlé) or reducing the use of high fructose corn syrup
(Hershey Company and Mars, Inc.), these types of changes do not allow them to overcome
the problem of rapidly changing consumer tastes toward natural food. Grocery stores and
restaurants are also attempting to take advantage of the trend toward natural foods.
Teaching Note
Ask students to evaluate Hain Celestial’s strategy and what they would have done
differently to implement it. Ask them to identify Hain’s competitors and how these
Answers to Case Discussion Questions
1. We note in the Mini-Case that Hain Celestial is implementing the differentiation strategy.
Provide some examples of the competitive dimensions on which this firm focuses while
implementing its differentiation strategy.
Chapter 4: Business-Level Strategy
Perhaps the most important dimension in Hain Celestial’s differentiation strategy is the
2. On what environmental trends did Hain Celestial base its business-level strategy? What
environmental trends could have a negative effect on this firm’s strategy in the future?
Why?
Hain Celestial capitalized on many consumers’ emerging interest in living a healthier
3. In years to come, should Hain try to grow primarily organically, through collaborative
strategies such as joint ventures and strategic alliances, or through mergers and
acquisitions? Explain your answer.
Hain Celestial has been very successful in growing through acquisitions, which may
4. What are the most serious competitive challenges you anticipate Hain Celestial will face
over the next ten years? How should the firm respond to these challenges?
The organic and natural food market has already attracted a number of new competitors
Chapter 4: Business-Level Strategy
ADDITIONAL QUESTIONS AND EXERCISES
The following questions and exercises can be presented for in-class discussion or assigned as
homework.
Application Discussion Questions
1. Students are customers of the university or college. What actions does your school take to
recognize and satisfy its students’ needs? Students should be prepared to discuss their
views.
3. Assuming students have decided to establish and operate a restaurant in your local
community, ask them what market segment they intend to serve. What needs do these
customers have that the students could satisfy with their restaurant? How would they
satisfy those needs? They should be prepared to discuss their responses.
6. Do students feel the Internet is potentially of more value for firms implementing either
the differentiation strategy or the focused differentiation strategy than for those using
either the cost leadership or focused cost leadership strategy? If so, why?
7. Is it possible for a traditional firm to become too reliant on the Internet? If so, why? If
not, why not?
Ethics Questions
1. Can a commitment to ethical conduct on issues such as the environment, product quality,
and fulfilling contractual agreements affect a firm’s competitive advantage? If so, how?
Chapter 4: Business-Level Strategy
29
4. Reexamine the assumptions about effective TQM systems presented in the chapter. Do
these assumptions urge top-level managers to maintain higher ethical standards than they
now have? If so, how?
INSTRUCTOR’S NOTES FOR MINDTAP
Cengage offers additional online activities, assessments and resources inside MindTap,
our online learning platform. Here is a comprehensive listing of the activities available
within each chapter of MindTap for Hitt, Ireland Hoskisson’s Strategic Management:
Competitiveness and Globalization, 13th edition:
Course Level Resource: Cornerstone to Capstone Diagnostic- features short quizzes in
Chapter Level Resources:
• What Would You Do Video
• MindTap Reader (eBook)
• Assignments:
o Multiple Choice Quiz
Course Level Case Resources:
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30
• Text Cases (Readings)
ADDITIONAL INFORMATION FOR SELECT MINDTAP RESOURCES:
WHAT WOULD YOU DO? BURBERRY
This exercise introduces students to strategic decisions as they are made in the real world.
Students should come to class prepared to discuss this exercise, and why they chose the
VIDEO QUIZ: BURBERRY
The media quiz offers additional opportunities for students to apply the concepts in the
chapter to a real-world scenario as it is described in news reports.
Title: Burberry
RT: 3:34
Topic Key: Business-Level Strategy, Managing Relationships with Customers, Market
Segmentation, Differentiation Strategy, Five Forces of Competition
The video opens with a short survey of differing opinions of the clothing company
Burberry. Immediately, two distinct opinions emerge:
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shows featuring their newest designs. Burberry has also been updating their image by
holding events attended by celebrities who proudly wear and support the company’s
clothing. This has helped to change the image of the company over the last few years, as it
is once again seen as the luxury brand it once was and wishes to be.
Suggested Discussion Questions and Answers
• Describe Burberry’s business-level strategy.
• How is Burberry managing its relationship with customers?
Burberry holds fashion shows to showcase their newest clothing, and hosts events
• Is the differentiation strategy appropriate for Burberry? Why or why not? Now or in the
future?
Providing high luxury clothing products at luxury prices has worked well for
GUIDED CASE: HAIN CELESTIAL
This auto-graded activity asks students to read the short end-of-chapter case on Hain
Celestial, and answer questions in the areas of Analysis, Strategy, and Implementation
& Performance.
Hain Celestial Group has built strong capabilities in producing natural and organic foods
and has built its strategy to take advantage of the changing consumer trend in the food
business. The company grew through a series of acquisitions of entrepreneurial start-ups.
Chapter 4: Business-Level Strategy
In answering the Guided Case Questions, students will review these concepts:
• Business models
YOU MAKE THE DECISION: TESLA
You Make the Decision branching exercises are real-world activities that allow each
student to work through challenges by choosing from different decision-making options.
Tesla is a 10-year-old company that specializes in electric power technology. The firm sells its
powertrain components to other car companies. At the same time, it is selling a high-
performance electric Roadster and the Model S and Model X luxury cars. The company is
serving two customers at the same time, both with a focused differentiation strategy.
Students will review these concepts:
• Types of business-level strategies
• Risks associated with each type of business-level strategy
Chapter 4: Business-Level Strategy
The ideal path that earns a perfect score is the following:
• Choose to continue selling both cars and technology to competitors
• Continue in our differentiation strategy. We need to continue to invest in R&D to make
GROUP PROJECT: HITTING THE TARGET:
UNDERSTANDING CUSTOMER NEEDS WITH MARKET
SEGMENTATION
By asking students to identify the business-level strategy of various companies, this
exercise provides students the opportunity to identify how market segmentation is used by
firms to craft advertising campaigns that target a specific customer base. The instructor