directly from the EFE and IFE matrices. The QSPM matrix should include 10 external critical success factors and 10 internal critical success factors.
Step 2: Categorize each external and internal critical success factor
in.
Step 3: Study the matrices in stage 2 (combination) and identify the
alternative strategies that an organization should consider implementing. Group specific strategies into distinct groups, which may exist in several different groups within a business.
Step 4: Determine the attractiveness score (AS), which is a numerical value that represents the relative attractiveness of each strategy in a given set of alternative strategies.
Attractiveness scores are determined by considering each internal and external critical success factor, one at a time, and asking the question, ''How does this factor influence the choice of strategies being evaluated?'' If the answer is ''yes'', then strategies should be compared with respect to this important factor. In terms of a single factor, an attractiveness score is assigned to each strategy to indicate the relative attractiveness of each strategy compared to other strategies.
Attractiveness scores range from 1 = not attractive, 2 = slightly attractive, 3 = fairly attractive, 4 = very attractive.
If the answer to the above question is “no,” meaning that this critical success factor has no influence on the choice, then do not score attractiveness for these strategic groups.
Step 5: Calculate the total attractiveness score (TAS). The total attractiveness score is the result of multiplying the classification score (step 2) by the attractiveness score (step 4) in each row, considering only the influence of the internal and external key success factors in the adjacent column, the total attractiveness score represents the relative attractiveness of each selected strategy. The higher the total attractiveness score, the more attractive the strategy (considering only the key success factors in the adjacent column).
Step 6: Add the attractiveness scores. This is the sum of the total attractiveness scores in the strategy column of the QSPM matrix.
1.3 BUSINESS LEVEL STRATEGY
1.3.1 The fundamental elements of business-level strategy
1.3.1.1 Customer needs and product differentiation
Customer needs are wants, needs, or cravings that can be satisfied by means of product or service characteristics.
Product differentiation is the process of creating competitive advantage by designing products - goods or services with unique characteristics to satisfy customer needs.
All companies must differentiate their products so that they can attract customers and at least satisfy their needs.
1.3.1.2 Customer groups and market segmentation
Market segmentation is the way a company groups customers based on important differences in their needs and preferences, in order to gain a competitive advantage.
Companies can use three strategic options to target market segments:
- First, choose to serve normal customers, so it is not necessary to recognize the difference in needs between groups (assumed that all customers have average needs).
- Second, serving diversity means segmenting its market into different segments and developing products that adapt to the needs of each segment.
- Third, focused service, meaning that the company recognizes that the market is segmented but focuses on serving only one segment, or one niche.
Instead of having just one product for the entire market, if the company has different products to serve different customer groups, the customer needs will be better satisfied. Therefore, customer needs
The firm's product mix increases and generates more revenue than if the firm offered only one product to the entire market. However, sometimes the nature of the product or the nature of the industry does not allow for much differentiation, for example, iron and steel, cement. These industries provide little opportunity to gain competitive advantage through product and market segment differentiation. In such cases, price is the primary criterion by which customers evaluate products, and the competitive advantage will go to the firm that offers the product at the lowest price.
1.3.1.3 Discrimination ability
Differentiating capabilities are the ways a company uses to satisfy customer needs to gain a competitive advantage. Some companies focus on building scale, experience curve effects to produce products at low cost, other companies focus on R&D, technology to satisfy customer needs for unique products, with superior design and quality. Some other companies focus on sales, after-sales service, etc.
The foundation of competitive strategy is formed from the combination of decisions about the company's products, markets and distinctive capabilities, aimed at achieving competitive advantage over rivals.
Sources of competitive advantage
Lowest Cost Differentiation
Wide
Narrow
1.3.2 Choosing a general competitive strategy
Lowest cost
Product differentiation | |
Focus on lowest cost | Focus on product differentiation |
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Competitive Range
Figure 1.6 General competitive strategies
Source: Nguyen Thi Lien Diep & Pham Van Nam (2008), Business strategy and policy , Labor and Social Publishing House, Ho Chi Minh [2].
1.3.2.1 Lowest cost strategy
The essence of a low-cost strategy is to achieve the lowest total cost in the industry. In other words, a low-cost strategy is based on the ability of a business to provide a product or service at a lower cost than its competitors.
The goal of a company pursuing this strategy is to create products and services at the lowest cost to surpass competitors, to survive and develop.
Product differentiation
Market segmentation
Special strengths
Low cost strategy
Differentiation strategy
Focus strategy
Low (mainly price) | High (mainly by uniqueness) | Low or high |
Low (high volume market) | High (multiple market segments) | Low (one or a few segments) |
Production and supply chain management | Research and development, sales and marketing | Any strength (depending on low cost or differentiation strategy) |
Figure 1.7 Competitive strategy and fundamental factors
Source: Nguyen Thi Lien Diep & Pham Van Nam (2008), Business strategy and policy , Labor and Social Publishing House, Ho Chi Minh [2].
The company chooses the lowest cost strategy with low product differentiation, low market segmentation, and specific strengths focused on production management and raw material supply.
Companies using a low-cost strategy have competitive advantages:
- Because of low costs, the company can sell its products at a higher price than its competitors and still maintain its expected profit. In case competitors sell at the same price, the company with the lowest costs will have higher profits.
- When an industry enters a mature stage, if a price war occurs, the company with lower costs will win due to its better competitiveness.
- The company is easily able to withstand pressure from suppliers to increase prices.
Disadvantages of pursuing a low cost strategy:
- Competitors can reduce costs lower, easy to be imitated by competitors;
- Changes in technology.
- Must always find ways to produce at lower costs than competitors.
- Due to the low cost target, the company may ignore and not respond to changes in customer tastes.
1.3.2.2 Product differentiation strategy
The essence of product differentiation strategy is to create something that the entire industry recognizes as “unique”. Differentiation is expressed in many forms: design, product quality, brand label, technology, customer service…
The goal of a differentiation strategy is to gain a competitive advantage by creating products (goods or services) that customers perceive as unique and satisfying customer needs in ways that competitors cannot. This ability allows the company to charge a “premium” price for its products, increase sales, and achieve above-average profit margins. This “premium” price is usually higher than what a cost leader would charge, and customers are willing to pay for it because they believe the product is of superior quality.
The company chooses a product differentiation strategy with a high level of product differentiation, high market segmentation, and specific strengths focused on: R&D, marketing and sales.
Advantages of pursuing a product differentiation strategy:
- Differentiation helps the company cope with the five competitive forces in the industry and earn above-average profits.
- The most valuable asset that a differentiation strategy creates is customer brand loyalty.
- With a differentiation strategy, the company can withstand increasing input prices.
- Brand differentiation and loyalty also create a barrier to other companies wanting to enter the industry.
- With substitute products, when customers are loyal to the product, it is difficult for substitute products to gain a foothold in the hearts of customers.
Disadvantages of pursuing a differentiation strategy:
- Building and developing distinctive capabilities to create differentiated products/services often requires huge costs, making product prices high, even very high.
- The key issue with a differentiation strategy is to focus on the company's long-term ability to maintain its perceived uniqueness in the eyes of customers.
- Product quality is increasingly improved and customers have full information about the product, customers are also more sophisticated and sophisticated, so brand loyalty is easily lost.
- In pursuit of differentiation, companies may include very expensive details, accessories or features that customers do not need or value.
- Changes in customer needs and tastes.
1.3.2.3. Focus strategy
The essence of a focus strategy is to serve the needs of a certain group or market segment identified through geographic factors, customer base or product characteristics.
A company using a focus strategy may focus on low cost or differentiation only in a selected market segment, in order to gain a competitive advantage.
A company using a focus strategy has a low level of product differentiation if it focuses on lowest cost, and if it focuses on differentiation.
Differentiation means that the level of product differentiation will be high, and market segmentation will be low – there will be only one or a few segments. Depending on how the company focuses, the distinctive strengths will be concentrated in different stages.
Advantages of pursuing a focused strategy:
- The competitive advantage of companies pursuing a focus strategy stems from their own competitive capabilities - the ability to provide unique products/services that competitors cannot.
- Customer brand loyalty reduces the threat of substitute products and acts as a barrier to potential competitors.
- The company has the ability to create products with a high level of differentiation, meeting customer needs.
- Because it focuses on a small group of products, the company responds better to changes in customer tastes and makes improvements and inventions faster than a company that implements a broad differentiation strategy.
Disadvantages of a company pursuing a focused strategy:
- The company is at a disadvantage with suppliers because of small purchase volumes.
- Due to small-scale production, the company cannot take advantage of large-scale effects and experience curves, and often has high production costs.
- The company needs to invest in developing competitive capacity, leading to high production costs and reduced profits.
- Competitive position can be lost due to changes in technology or customer tastes.
- Unlike a broadly differentiated firm, a firm pursuing a focus strategy cannot move easily to new niches precisely because it concentrates its resources and competitive capabilities in one or a few niches.
- Competitors find submarkets within the focus company's target market and beat these companies with more differentiation and specialization.
- In modern conditions, the gap of difference will gradually narrow.
1.3.2.4. Rapid response strategy
Responsiveness refers to the speed with which customer-facing issues such as the creation of new products, the improvement of products, or the making of decisions are implemented as quickly as possible. Responsiveness reflects the company's dynamism.
Competitive advantages of pursuing a rapid response strategy:
- New product development.
- Product personalization. As living standards increase and customer needs become more personalized, the success of companies lies in having products and services that meet the very different needs of customers.
- Improve existing products.
- Distribute products according to orders.
- Adjust marketing activities.
- Attention to customer requirements.
1.4 SOME INTERNATIONAL EXPERIENCES IN BUILDING BUSINESS STRATEGIES OF ENTERPRISES
To create a good strategy, the issue of absorbing, researching to inherit and develop the experience of building strategies of successful businesses in the world, especially in advanced countries with many similarities with Vietnam, is very important. The following are some common experiences summarized from many companies in countries: America, France, Japan, Singapore, China, Korea, Thailand, Malaysia... that can be applied to building business strategies for Vietnamese businesses.
1) To have a good strategy, first and foremost, it is necessary to have a scientific strategy building process that synthesizes different approaches, but still meets the requirements for strategy building when considered from each aspect.
2) Specific and accurate analysis of both qualitative and quantitative aspects on each