fter reading the assigned textbook chapter, one student per team will answer a set of chapter-related questions (listed on CC) based on an imaginary business using a random word generator (https://wor
Nina Gjone
02/04/2019
BUS 442
Ofer Meilich
Chapter 5 TiP – Selecting Business-Level Strategies
Generic Strategy
Carbon Performance Inc. is a company that produces 3D-printed carbon fiber bicycles to active consumers willing to spend an extra buck on a custom-designed bike that is light-weight, durable, fast, and user-friendly. The price-point is higher than the cheapest bikes on the market, yet very achievable to be purchased by sporty, middle-class consumers looking for a fun exercise or an alternative and environmental-friendly means of transportation. As such, the firm’s generic strategy is focused differentiation, which is when a business attempts at fulfilling the needs of a narrow market by offering unique features that other competitors in the industry currently lack (Ketchen & Short, 2011).
What is the source of your competitive advantage?
Since the generic strategy is focused differentiation, the main source of the competitive advantage of Carbon Performance Inc. becomes offering something unique that other companies in the bicycle industry do not. The technology of 3D-printed bikes allows customers to design their own bikes based on personal preferences at the actual retail site or online. Carbon Performance Inc. has one standardized bike as the base product, but from there, customers can choose among features such as safety breaks, suspension dampers, high speed, GPS dash pad, and so forth. Consequently, Carbon Performance Inc. gains an edge on its rivals by using a different production technique that gives customers more autonomy and freedom of choice over the features that come with the products they purchase.
What is your market scope?
Carbon Performance Inc. aims at targeting middle-class consumers that are either competing athletics or sporty, trendy consumers who enjoy being active either for training purposes or for leisure purposes. These customers know exactly what features they want on their bikes because they already know what they want to get out of a bike ride experience, whether that is to exercise, to get from A to B, or to simply have fun. The target market typically lives in metropolitan areas or suburban areas and are typically environmentalists that can afford to buy quality bicycles. The age of the customers can vary a lot but usually stays within the range of 20 to 45 years old with some exceptions.
Advantages
With a focused differentiation strategy, Carbon Performance Inc. has the ability to charge very high prices if the company desires to, as the niche market knows that the value of the product, which includes the quality of the material, the performance, and the extensive customer service, is well worth the price. Furthermore, by acquiring specialized knowledge about 3D-printed carbon bicycles and the additional features available, Carbon Performance Inc. is able to develop expertise on the products the company makes and sells (Ketchen & Short, 2011). In other words, opposed to other competing firms in the bicycle industry, Carbon Performance Inc. is the first incumbent with superior competency about 3D-print bicycles made out of carbon fiber material.
Disadvantages
Although a focused differentiation strategy provides very attractive advantages, it also comes with disadvantages that can pose as significant risks if they are not being appropriately prepared for. A narrow niche has limited demand available, which can cause problems if the target market is being served to its fullest capability (Ketchen & Short, 2011). However, even though the target market for Carbon Performance Inc. can be relatively narrow in one specific region, it is possible to overcome this disadvantage by expanding retail sites to other areas or by opening a website that can offer the same opportunities of customization and service as well as shipping. Another possible threat to this strategy is that since the target market is focused, there is a possibility that it could be taken over by larger competitors who already have captured significant market share in the bicycle industry. Lastly, Carbon Performance Inc. is also prone to be challenged by smaller firms who wish to adopt an even narrower market focus (Ketchen & Short, 2011).
Value Creation Frontier
As Carbon Performance Inc. is using an innovative method of producing its bicycles as well as using a very untraditional and original material for bicycle production, it becomes quite clear that the company falls into the stage of innovation on the Value Creation Frontier. Not only is Carbon Performance Inc. providing a new process of purchasing a bike, it is also giving customers the freedom to design their own bikes based on personal needs and desires. Essentially, it provides high quality bikes with luxurious features and a fashionable and stylish look. As customers are provided with a specialty product, freedom to customize it, and individual service, Carbon Performance Inc. can be considered an exclusive brand.
Changes in Generic Strategy
If Carbon Performance Inc. were to switch to the opposite spectrum of generic strategy, it would have to become a wide low-cost leader. Such a strategy is composed of a completely different set of tactics. First, the company would have to broaden their market segment to a wider population. In order to do so, Carbon Performance Inc. could create three different bicycle frames as the base; one that is light-weight and focused on high speed, one that is heavy-duty and focused on off-roading and rough terrains, and one that is meant for everyday leisure use. The first two basic frames would apply to narrower market niches comprised of people who are interested in bicycles designed for specific outdoor activities, whereas the leisure bicycle could essentially appeal to an extensive target market of people who are looking for a functional, multi-purpose bike for general use.
Second, after expanding the market segment, Carbon Performance Inc. will have to lower its price point. By broadening the consumer market with leisure bicycles, the company can create a standardized model of the leisure bike to eliminate the process of customization. That allows the firm to spend less money on service and expensive features, while simultaneously holding on to the 3D-printing technology to keep their competitive advantage. By using this technology, Carbon Performance Inc. can produce bicycles upon request rather than stocking large volumes of inventory. This saves the firm costs associated with storage space and over-production because it only needs a few pre-made bicycles of each kind on retail sites for demonstration purposes.
One challenge faced with the combination of 3D-printing technology and lower costs is how to achieve economies of scale. Carbon Performance Inc. can possibly reach this objective by creating some kind of partnership or agreement with its carbon fiber supplier as well as its 3D-printer supplier. By increasing the demand through expansion of the market scope, the firm would need to raise the quantity of produced bicycles, which would require a higher dependency on its main suppliers.
Multiple-Choice Questions
Which two elements are critical to a focused differentiation strategy?
Offering unique features that fulfill the demands of a wide market.
Offering low-cost features that fulfill the needs of a narrow market.
Offering unique features that fulfill the demands of a narrow market.
Offering low-cost features that fulfill the needs of a wide market.
Correct answer: C
Which of the companies listed below is most notorious for its wide low-cost leadership strategy?
Target
Winco
Marshalls
Walmart
Kmart
Correct answer: D
References
Ketchen, D., & Short, J. (2011). Selecting Business-Level Strategies. In Mastering Strategic Management (pp. 135-179). Boston, MA: Flat World Knowledge.
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