Chapter 4: Business-Level Strategy 135
activities and support functions in ways that allow them to
produce differentiated products at relatively low costs. This
flexibility is facilitated by flexible manufacturing systems and
improvements and interconnectedness in information systems
within and between firms (buyers and suppliers). The primaryrisk of this strategy is that a firm might produce products that
do not offer sufficient value in terms of either low cost or dif-
ferentiation. In such cases, the company becomes “stuck in the
middle.” Firms stuck in the middle compete at a disadvantage
and are unable to earn more than average returns.KEY TERMS
business-level strategy 111
cost leadership strategy 118
differentiation strategy 122
focus strategy 127integrated cost leadership/differentiation
strategy 129
market segmentation 114
total quality management (TQM) 133REVIEW QUESTIONS
- What is a business-level strategy?
- 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? - What are the differences among the cost leadership, differenti-
ation, focused cost leadership, focused differentiation, and inte-
grated cost leadership/differentiation business-level strategies?
4. How can each of the business-level strategies be used to
position the firm relative to the five forces of competition in a
way that helps the firm earn above-average returns? - What are the specific risks associated with using each
business-level strategy?
Mini-Case
Is JCPenney Killing Itself with a Failed Strategy?
A few years ago, JCPenney was a traditional, low-end
department store that appeared to be in a slow decline.
Bill Ackman of Pershing Square Capital Management, a
hedge fund investor, bought a large stake in the company
and pushed to hire a new CEO, Ron Johnson. Johnson,
who had successfully created the Apple retail store con-
cept, was tasked with turning around the company’s
fortunes.
In January 2012, Johnson announced the new strategy for
the company and rebranding of JCPenny. The strategy an-
nounced by Johnson entailed a remake of the JCPenny retail
stores to create shops focused on specific brands such as Levi’s,
IZOD, and Liz Claiborne and types of goods such as home
goods featuring Martha Stewart products within each store.
Simultaneously, Johnson announced a new pricing system.
The old approach of offering special discounts through-
out the year was eliminated in favor of a new custom-
er-value pricing approach that reduced prices on goods
across the board by as much as 40 percent. So, the price
listed was the price to be paid without further discounts.
The intent was to offer customers a “better deal” on all
products as opposed to providing special, high discounts
on selected products.
The intent was to build JCPenny into a higher-end (a
little more upscale) retailer that provided good prices on
branded merchandise (mostly clothes and home goods).
These changes overlooked the firm’s current customers;
JCPenny began competing for customers who normally
shopped at Target, Macy’s, and Nordstrom, to name a
few of its competitors. Unfortunately, the first year of this