Essential Unit Vocabulary

Best Cost Provider – The best cost provider strategy has the goal of providing the customer with more value for the money on a product by having low cost and upscale differences. This strategy either provides lower prices for a product with comparable attributes (e.g., level of quality or features) or better product attributes at the same price as competitors. See YouTube.

Broad Cost Leader – One of the five business level strategies. Where the strategy’s competitive advantage is the cost of goods sold and its competitive scope is broad in target. Broad cost leaders must provide an acceptable level of service, quality, and features at a low price and sell to a broad market segment.

Business Level Strategy (BLS) – An organization’s core competencies should be focused on satisfying customer needs or preferences in order to achieve above average returns, which is done through Business-level strategies. Business level strategies detail actions taken to provide value to customers and gain a competitive advantage by exploiting core competencies in specific, individual product or service markets. Business-level strategy is concerned with a firm’s position in an industry. Five generic BLS were identified by Michael Porter (Broad Cost leadership, Broad Differentiation, Focused Cost Leadership, Focused Differentiation, Best Cost Provider).

Focused Cost Leadership – One of the five generic business level strategies. This strategy competes based on price in a narrow, “targeted” market. This strategy does not necessarily charge the lowest prices in the industry, instead, it strives to charge low prices relative to other firms competing within the smaller target market.

Focused Differentiation – One of the five generic business level strategies. This strategy restricts marketing to a narrow segment of the industry — or niche — while promoting the unique qualities of the product. Differentiation may be based on geography, quality, features, or service. This type of strategy works best when a market has been “over served”. For example, when a product becomes bloated with features, buyers of the product become unwilling to pay the price needed to make a profit. In this situation a focused differentiator will reduce features in order to lower the price and sell a “stripped down” version of a unique product.

Niche Strategies – Niche Strategies are marketing approaches for a good or service with attractive features that focus on one particular minority market subgroup. A typical product marketed using a niche strategy will be easily distinguished from other products, and it will also be produced and sold for fulfilling the Identifiable and unique needs within the niche market.

Perceived Value – The value a person associates with a given object or service based on their own judgements and usually influenced by previous experiences with the same or similar products. Brand marketing assumes consumers will pay extra for a higher perceived value related to their brand.

Race to the Bottom – A competitive strategy where companies are forced to continue to cut prices in order to compete with their competitors and continue to get customers in their stores and generate sales. This can be seen in the retailing industry where Wal-Mart, Amazon and others are all competing on the lowest prices. The issue with this strategy is that companies can start cutting prices so low that they are making little to no profit and in some cases losing profit.

Zero-sum game – When one person’s gain is equivalent to another’s loss such that the net change in wealth or benefit is zero. A zero-sum game is not necessarily between two players, there can be millions of participants, but the end result is the same — the net change in wealth or benefit is equal to zero.

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Strategic Management 2E by John Morris is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License, except where otherwise noted.

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