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                                  Discussion Questions

1. Why does each generic competitive strategy require a different set of product,
market, and distinctive competency choices? Give examples of pairs of companies
in (a) the computer industry and (b) the auto industry that pursue different
competitive strategies.

         There are five generic competitive strategies: cost leadership, differentiation, cost

leadership & differentiation, focus differentiation, and focus cost leadership. (Hill, Jones)

Each of these strategies requires a different set of products, markets, distinctive

competencies because they are targeting different types of consumers. The focus of what

type of consumer they are after is different in each case, therefore the products must be


         Cost leadership has two advantages. First, a cost leader is able to compete on

price and be more profitable than its rivals due to lower costs. And second, because it

has lower costs they can charge lower prices for their goods, thus giving them a

competitive advantage. (Hill, Jones) Companies pursuing a cost leadership strategy

typically offer little product differentiation other than price, little market segmentation as

they are aiming towards the masses, and focus their distinctive competencies on

manufacturing and materials management to lower costs as much as possible. (Hill,


         Differentiation on the other hand is not concerned that much with price, but rather

is focused on creating a product that is perceived as different or distinct in some

important way. (Hill, Jones) Product differentiation can be accomplished in three

principal ways: Innovation, quality, and responsiveness to customers. Typical features of

this strategy are high product differentiation in the form of uniqueness, high market
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segmentation, and a focus on research and development as well as sales and marketing.

(Hill, Jones)

       Cost leadership and differentiation strategy is simply taking the two separate

strategies and putting them together. Companies trying to achieve this strategy are

constantly looking for ways to lower costs while at the same time providing that added

value in order to still charge a premium price for their goods. (Hill, Jones) Toyota is a

good example of this as they are able to achieve economies of scale in the manufacture of

SUVs by standardizing many of the components. As a result Toyota is able to keep costs

down while charging higher prices for their vehicles because the perception is that they

are built better than a Ford or Chrysler. (Hill, Jones)

       Focus differentiation and focus low cost are directed toward serving a specific

market segment or niche. (Hill, Jones) This means that companies focus on a particular

group of people such as serving only the very rich, or very elderly, or focusing on a

segment of the product line such as catering to vegetarians. Once a company has chosen

a market segment it chooses either a differentiation or low cost approach. Simply put a

focused cost strategy offers low priced products to only one group of customers, while

focused differentiation offers unique or distinctive products to only one group of

customers. (Hill, Jones)

       In the computer industry eMachines which is owned by Gateway Inc. has adopted

a strategy of cost leadership. They offer PC’s and notebooks at a competitive price with

similar quality to its competitors. They do not offer personalization but rather a few

different models that would satisfy a wide range of potential customers. (Corporate

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Background) In contrast Dell pursues a cost leadership and differentiation strategy.

They offer customized PCs and laptops at a very competitive price. They focus on

customer service as one of their means to differentiate themselves from other computer

manufactures. Dell has continuously kept to this strategy and as a result is one of the top

computer manufactures in the world. (Standards)

       In the auto industry we can look at Kawasaki Motorcycles, which pursues a

focused cost leadership strategy in the motorcycle market. They offer several different

models that can satisfy many different motorcycle customers. Their bikes are relatively

inexpensive compared to some of its competitors such as Harley-Davidson. In contrast,

Orange County Choppers is a company that pursues a focused differentiation strategy.

OCC manufactures custom, hand made bikes (choppers) that are usually made

specifically for a single customer. Their bikes are unique and very expensive compared

to other motorcycle manufactures. (See Appendix A)

2. How can companies pursuing a cost-leadership, differentiation, or focus strategy
become stuck in the middle? In what ways can they regain their competitive

       Companies can become stuck in several different ways. First a firm must clearly

define it core competencies and have a clear plan of action to realize the goals and

strategy they set forth. Many companies, through ignorance or error, do not do the

planning necessary for success in their chosen strategy. (Hill, Jones) A low cost firm

cannot strive for a high level of market segmentation, because this would drive its cost

structure up and the firm would loose its low cost advantage. Similarly, a firm whose

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focus is on differentiation cannot automatically assume that cutting costs will be the best

thing for the firm, as they may loose the distinctive competency it has as an advantage.

(Hill, Jones)

       Second, a firm can start out pursuing one strategy, make a few wrong decisions

and/or experience a hostile environment and the next thing they know they have lost

control of their strategy. It is imperative that managers clearly define their strategic

intent and keep close track of the business and its environment and constantly make

necessary adjustments. (Hill, Jones) It would seem that some companies can’t or won’t

see past their own nose and they end up missing the bus so to speak. Some end up

realizing their mistakes and are able to adjust just in time, others end up going out of

business. Other companies it would seem have a hard time staying the course. They

come into contact with a little adversity and waiver. Not adjusting accordingly can be

just as devastating as not adjusting at all. On the other hand some firms stay too long on

their course and do not seize opportunities and watch as other companies gain market

share and profits. Such is what happened to Holiday Inn as they did not respond

accordingly to the changes in their industry until other hotel chains started attacking these

changes. (Hill, Jones) Companies need to monitor the environment and their competitors

constantly so that they can keep the company’s sources of competitive advantage in tune

with changing opportunities and threats. (Hill, Jones)

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3. Over an industry’s life cycle, what investment strategy choices should be made by
(a) differentiators in a strong competitive position and (b) differentiators in a weak
competitive position?

       Companies that wish to pursue differentiation as a generic strategy experience a

life cycle for their products or services as do other companies that pursue different

strategies. Choosing an investment strategy is the second major decision that is made at

the business level. This sets the amount and type of resources a firm will invest into a

given venture, all meant to insure maximization of a firms profits. (Hill, Jones)

       The first stage differentiators weak or strong are going to go through is the

embryonic stage. This is when initial investments are high as they develop their

distinctive competencies, and build a business plan to establish a competitive advantage.

(Hill, Jones) For this stage the share-building strategy is appropriate as they aim to build

market share and attract customers to their product.

       Next is the growth stage. For strong differentiators the goal is to maintain and

expand its competitive position. In other words they need to grow as much as possible to

realize economies of scale and market saturation. Weak firms on the other hand need to

concentrate on their specific niche in order to consolidate their position. Weak firms may

adopt a focus strategy at this time to reduce their investment needs. If very weak they

may wish to sell out to a stronger competitor. (Hill, Jones)

       Moving along the product lifecycle is the shakeout stage. This is when the market

separates the men from the boys, so to speak. This is when competition is increasing in

price and product characteristics. (Hill, Jones) Strong companies will want to engage in

a share-increasing strategy, which means they are trying to out maneuver the competition

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and force the weak companies out of the market by taking their market share. (Hill,

Jones) Weak competitors on the other hand need to reduce their investment burden by

retreating to a focused strategy, if they wish to stay in their particular market. These

weak companies will either go to a market concentration strategy or will engage in a

harvest or liquidation strategy, which means that they will consolidate or get out all

together. (Hill, Jones)

       The next stage is maturity. By this stage a relatively stable strategic group

structure has taken shape in the industry, and companies have learned how their

competitors will probably react to their competitive moves. (Hill, Jones) Companies at

this time may adopt a hold-and-maintain strategy so they may expend resources to

develop their distinctive competencies so as to remain the market leaders. It is also the

time when differentiators take advantage of their strong position and move to develop

more flexible manufacturing systems to reduce their costs. (Hill, Jones) On the other

hand, companies may choose a profit strategy, in which they maximize present returns

and invest proportionally less in improving functional resources and increase returns to

shareholders. (Hill, Jones)

       All good things must come to an end, and so holds true in the life cycle of

products. During the decline stage, demand for a firms product(s) starts to fall. There are

many reasons why this happens, but the end story is how to deal with the situation. Some

companies try to consolidate and narrow its product range to focus on areas where they

can be most successful.(Hill, Jones) More often than not companies realize this decline

and opt to harvest all remaining returns it can before it gets out of the market all together.

(Hill, Jones)

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4. How do technical developments affect the generic strategies that companies in an
industry pursue? How might they do so in the future?

       A business level strategy can change instantly with changes in technology. The

business level strategies are the ones that companies use to gain a competitive advantage

over their rivals. Companies use varying customer needs and product differentiation to

set their company apart from the rest of the competition in the industry. One generic

strategy that companies will use is a cost-leadership strategy. This strategy is aimed at

giving a competitive advantage by having the lowest costs in the industry. Changes in

technology can deeply affect this strategy as competitors innovations may allow them to

produce at a lower cost than you, thus negating your cost leadership strategy.

Technological advances are often used to increase efficiency, so a new technological

development can allow companies in the industry to operate at a more efficient level. A

differentiation strategy can often be a good way for a company to separate itself from the

rest of the industry. Technological advances can affect this type of strategy by allowing

other companies to gain the types of innovation your company relies on for

differentiation. When other companies can do the same thing you do, the differentiation

strategy is no longer a strategy capable of giving a company a competitive advantage

(Thompson, Strickland 341).

       New technologies provide many ways for companies pursuing a cost-leadership

strategy to differentiate their goods and services increasingly while maintaining a low

cost structure. Conversely, technological developments often provide many ways for a

company that has traditionally pursued a differentiation strategy to find new ways to do it

at a significantly lower cost so that it can choose a lower pricing option and build

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demand. The result has been that companies pursuing different strategies have been

drawn into closer competition for customers; rivalry among competitors has increased as

they jockey for position, and competitive advantage has become more fragile and short

lived than ever before (Hill and Jones, 165).

       Taking advantage of the many ways new technology allows them to manage their

value chains more efficiently; many companies are reaping the gains that follow from

positioning themselves competitively to obtain the benefits from both low-cost and

differentiation strategies (Hill and Jones, 166).

       In the future, new technological advances will affect many different companies’

strategies in many ways. New technological advances have affected many companies in

the last few years. Target’s new RFID technology has the potential to give them a

competitive advantage for keeping up with inventory. This technology will help to keep

inventory in their control and not fall into the hands of others that might use it. Big

pharmaceutical companies are testing new tracking technology they hope will help them

spot counterfeit drugs before they reach consumers' medicine cabinets. By putting tags

that transmit radio waves on medicine bottles sent to drug stores, company officials think

they will be able to detect fake drugs that aren't moving through usual supply chains

(High-Tech Tags Target Fake Drugs). Companies such as Dell have gained a competitive

advantage through the use of technology. Dell’s strategy as a computer dealer with

mainly phone based sales changed with the advent of the internet. Dell had to change

their strategies to compensate for the new technology before someone else did. They have

since dominated the industry in computer sales, and continue to grow.

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5. Why is it difficult for a company in one strategic group to change to a different
strategic group?

       When choosing a generic strategy for a business to follow, a company must look

far into the future to see what the future of the market might be. A successful competitive

advantage requires that a company make consistent product, market, and distinctive

competency choices. After a company has chosen a strategy it can be very expensive to

change their strategies. Generic competitive advantage strategies provide competitive

advantages, but they are expensive to develop and maintain. For example, a simultaneous

differentiation/cost-leadership strategy is the most expensive, because it requires that a

company invest resources not only in functions such as R&D, sales, and marketing to

develop distinctive competencies but also in functions such as manufacturing and

materials management to find ways to reduce costs. In deciding on an investment strategy

a company must evaluate the potential return from investing in a particular generic

strategy. In this way it can determine whether pursuing a certain strategy is likely to be

profitable and how profitability will change as competition within the industry changes.

The industry life cycle also affects how strategies are chosen. Each stage of the life cycle

has different implications for the investment of resources needed to gain a competitive

advantage (Hill and Jones, 174).

6. What insights would game theory offer (a) a small pizza place operating in a
crowded college market and (b) a detergent manufacturer seeking to bring out new
products in established markets?

       Using the game theory for a small pizza place operating in a crowded college

market would not be the best idea but it could work. A pizza parlor in a college market,

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will probably survive fairly easily if the pizza they offer is comparable to the

competitions pizza. Game theory would allow the company to possibly gain a

competitive advantage in the short run, but other pizza parlors will be close behind them

with deals that equal them. Overall, if one pizza parlor were to cut their prices to gain

market share, others would follow and negate the effects of the first pizza place. This

could possibly cause the market share each pizza place holds to change temporarily, but

would eventually change back to where it was in the first place. Overall profits for all

pizza places would decline and money would be lost by all. A pizza place would possibly

know their rivals and anticipate their next moves. In this case, many of them are going to

know what the next move in the local industry is going to be and how to avoid losing

market share. By looking forward and reasoning back, the game theory could possibly be

made profitable but managers need to be able to extrapolate their rival’s future behavior

based on this understanding (Hill and Jones, 180).

       Applying the game theory to a detergent manufacturer looking to bring out new

products in an established market could work very well. By predicting what competitors

will do when the new product is released they can potentially know how competitors will

react. A game theory could possibly work with the introduction of a new product because

the entrance into the market might provide them enough insight to where they are able to

use the small competitive advantage to gain a customer base away from competitor’s

products. The trick is to use the new product to gain name brand loyalty. This loyalty can

then be used to gain market share and new customers (Hill and Jones, 182).

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7. Fully explain what SIX SIGMA is and how it is implemented. Also Evaluate it. Is
it a true innovation or is it just another passing management fad? Can it be applied
to our industry and/or your firm? Why/Why Not?

       Six Sigma is a quality and efficiency program adopted by several major

corporations, including Motorola, General Electric, and Allied Signal, which aims to

reduce defects, increase productivity, eliminate waste, and cut costs throughout a

company (Hill and Jones, 129). The traditional quality paradigm defined a process as

capable if the process's natural spread, plus and minus three sigma, was less than the

engineering tolerance. Under the assumption of normality, this translates to a process

yield of 99.73 percent. A later refinement considered the process location as well as its

spread and tightened the minimum acceptable so that the process was at least four sigma

from the nearest engineering requirement. Motorola's Six Sigma asks that processes

operate such that the nearest engineering requirement is at least plus or minus six sigma

from the process mean (Pyzdek). Six Sigma is a good way to increase productivity in

companies by promoting efficiency. The reduction in waste also promotes cost leadership

and can be an important tool in gaining a competitive advantage. Overall it is a true

process innovation. Used in conjunction with SPC (Statistical Process Control), Six

Sigma can work to reduce waste and achieve superior efficiency in production lines.

However, Six Sigma is not pertinent to the retail industry in that it is a more production

oriented process. Six Sigma can be used in the retail industry to reduce some waste and

help find ways to reduce costs associated with inventory. Six Sigma can be applied to

Sears in that it could be used to help find ways to cut inventory costs and find more

efficient ways of controlling these costs. Six Sigma can be applied to the retail industry.

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Six Sigma can be used for process improvement in any industry. For process

improvement in the retail industry Sears can use Six Sigma to identify their company's

core competencies, their customer's (internal and external) CTQs, and which existing

process are not adding value and should be improved or redesigned.

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                                      SMP: Mod 5

   1. How differentiated are the products or services of your company? What is
      the basis of their differentiated appeal?

      Product differentiation is the process of designing products to satisfy customers’

   needs. A company obtains a competitive advantage when it creates, designs, and

   supplies a product in a way that better satisfies customer needs than its rivals do and

   chooses the correct pricing option. Sears is a leading retailer providing merchandise

   and related services. The company offers its wide range of home merchandise,

   apparel and automotive products and services. Sears also offers a variety of

   merchandise and services through,, and specialty catalogs.

   Sears is the only retailer where consumers can find each of the Kenmore, Craftsman,

   DieHard and Lands' End brands together. These brands are among the most trusted

   and preferred brands in the U.S. The company is the largest provider of product repair

   services (Sears Establishes New Executive Retail Position). According to a recent

   national survey conducted by Sears, more than half of all men spend 2 minutes or less

   picking out their daily attire. This suggests that guys just pick the first thing they see.

   Sears did this study in conjunction with its launch of its highly-anticipated, exclusive

   new clothing line for young male professionals. The new Structure collection was

   designed to appeal to young male professionals seeking affordably priced, versatile,

   fashion-forward clothing and is debuting in five key markets for fall 2004: Chicago,

   Detroit, Los Angeles, New Jersey and New York. In addition, Structure apparel can

   also be found on, which began selling men's and women's fashions at the

   beginning of this month (National Survey Confirms That Guys Need to Get Some

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                                                                                           - 14 -

   'Structure' in Their Closets). This is just one of the most recent projects Sears has

   executed in order to differentiate its products form competitors.

   2. What is your company’s strategy toward market segmentation? If it
      segments its markets, on what basis does it do so?

   Market segmentation is the way a company decides to group customers, based on

important differences in their needs or preferences, in order to gain a competitive

advantage (Hill, Jones 153). Sears generally segments its markets by what customers are

able and willing to pay for a particular product and by specific kinds of needs that is

being satisfied by a particular product. An example of how Sears segments its markets is

the different clothing lines that are available. Sears offers Covington dress slacks for

$19.98, but the also offer Lands End dress slacks for $125.00. This is a perfect example

of how Sears looks at what customers are willing and able to pay for pants. Another

example of how Sears segments its markets is the appliances Sears carries. Sears carries

a basic Kenmore refrigerator for $399.00 but they also carry a GE stainless steal

refrigerator for $2678.99 (Sears Good Life Great Price). Sears generally markets toward

the middle class but Sears chooses to segment its markets into different constituencies

and develop products to suit the upper poor and lower middle class to the upper middle

class. This is were Sears has an advantage over retailers like Wal-Mart that just carry

cheaper products or retailers like Bloomingdale’s that cater to mainly expensive products.

Sears carries products that can fit into just about anyone’s budget.

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   3. What distinctive competencies does your company have? Is efficiency,
      quality, innovation, responsiveness to customers, or a combination of these
      factors the main driving force in your company?

      Distinctive competencies are created to achieve a competitive advantage in

   satisfying particular customer needs and customer groups. There are four main ways

   companies can pursue a competitive advantage: superior efficiency, quality,

   innovation, and responsiveness to customers. Companies use these ways to organize

   and combine their company’s distinctive competencies to gain a competitive

   advantage (Hill, Jones 154). One of Sears’ distinctive competencies is the fact that

   Sears is the only retailer where customers can find Kenmore appliances, Craftsman

   tools, Diehard batteries, and Land’s End Clothing all under one roof. Sears is also the

   largest provider of product repair services. Efficiency, quality, innovation, and

   responsiveness to customers are all driving forces at Sears. One of the things that

   Sears is doing to improve efficiency is aligning inventories with customer spending

   patterns (Noh 1691). Sears has always carried quality products in their stores, but

   they are constantly expanding their lines to better serve the consumer. Sears’ effort to

   align inventories with customer spending is also very innovating. By replenishing in-

   store inventories according to need there is less risk of costly markdown activity and

   margin shrinkage (Noh 1691). Sears is very responsive to customers. Sears learns

   the needs of customers by building information systems that communicate customer

   feedback to the relevant people. Sears also uses the Internet to help customers make

   decisions. Virtual Model is used for trying on Land’s End clothes and Virtual

   Decorator is used for customers to create exactly what they want their room or rooms

   to look like. Because Sears uses all theses factors it helps with building distinctive


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   4. Based on these product, market, or distinctive competency choices, what
      generic business-level strategy is your company pursuing?

      Companies are in a constant competitive struggle with rivals in their industry and

   strategic group to gain more business from customers. Companies that understand

   the nature of the competitive game they are playing can often make better strategic

   moves that increase the profitability of their business-level strategies (Hill, Jones

   179). One of the newest of Sears’ strategies is the new Sears Grand. Sears Grand is

   the one stop shop home and family solution center that delivers a full range of quality

   products no other store provides. Everything people need to maintain their home and

   keep their family on the go can conveniently be found here, under one roof (Sears

   Grand Fact Sheet). What makes Sears Grand different from a Wal-Mart is the fact

   that Sears Grand store will have a full-range of quality products that are not available

   anywhere else. The strategy of carrying the same products as Wal-Mart along with

   exclusive products like Kenmore, Craftsman, and Land’s End will give them the

   competitive advantage over Wal-Mart and other retailers. Sears has also added

   Structure to their line of men’s clothing. Structure is a higher end, but affordable

   clothing line that is going to be only available at Sears starting at the beginning of this

   month (National Survey Confirms That Guys Need to Get Some 'Structure' in Their

   Closets). With all of the products that Sears is adding to their lines, Sears is definitely

   on the right track on obtaining its distinctive competencies.

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5) What are the advantages and disadvantages associated with your company’s
choice of business-level strategy?

       According to Hill and Jones, “Customer needs are desires, wants, or cravings that

can be satisfied by means of the attributes or characteristics of a product – a good or

service (Hill and Jones 151).” As noted in a previous question, Sears believes that

superior customer service enables our company to have a competitive advantage over our

rivals and enables us to differentiate ourselves from our competitors. As part of our

business-level strategy, we differentiate our products by designing them to meet customer

needs. We do this by using our advanced information systems to gain information from

customers to learn what they want. Sears carries many different product lines that are

created and designed as a result of what we learn from customers. Sears is constantly

evolving its product lines in order to cater to new market segments. One example is the

purchase of Lands’ End and Structure. The purchase of these companies has enabled our

company to improve growth prospects of our stores. A disadvantage of our business-

level strategy is the higher price of overhead when providing superior customer service.

About 30 percent of every dollar spent at Sears goes toward covering overhead compared

to about 15 percent at Wal-Mart (See Appendix B). Sears realizes that Wal-Mart has

greater economies of scale because they are a much bigger company so rather than

attempt to compete on price, we compete on quality. We offer many different quality

products that are only available through Sears and these products enable us to have

distinctive competencies compared to our competitors. Some of the most well known

product brands that are unique to Sears are Kenmore and Craftsman. Both of these

brands are considered to be top quality in their industry.

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6) Is your company a member of a strategic group in an industry? If so, which one?

       Sears is definitely a member of a strategic group in the retail industry. As stated

by Hill and Jones, “Within most industries, strategic groups emerge, each composed of

companies pursuing a similar generic strategy (Hill and Jones 172).” At Sears, we are a

member of the strategic group that is seeking a broad differentiation strategy. Sears has

been extending its product lines in many categories and is even adding new brands in

order to cater toward many kinds of customers. Many of these products are unique and

can only be purchased at one of Sears’ distribution channels whether it is online, in the

store, or out of a catalog. According to CEO Alan J. Lacy, we want to emphasize Sears

as a one-stop source of popular consumer brands rather than focus too much on price

(See Appendix B). We’re not saying that Sears doesn’t attempt to keep prices low, we

want customers to realize that our products are better. In order for customer to realize

that we will match any competitors advertised price if it is for the same product that we

are selling (subject to some exclusions). Not only are we differentiating our products, we

are also differentiating our people. Employees at Sears are put through extensive training

programs so that they can serve our customers better. Our highly trained employees are a

distinctive competency for Sears.

7) What investment strategy is your company pursuing to support its generic
strategy? How does this match the strength of its competitive position and the stage
of its industry’s life cycle?

       An investment strategy sets the amount and types of resources – human,

functional, and financial – that must be invested to maximize a company’s profitability

over time (Hill and Jones 173). For a long time, sales at Sears were decreasing and we

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were in a very weak position. Sears realized that we needed to do something so we began

pursuing a turnaround strategy. We have been successful in many of our acquisitions and

things are beginning to change. In order to sustain profitability over time, Sears is

currently in the growth stage and is putting its financial resources into expanding its new

retail concept called Sears Grand. We believe that in order to stay competitive in the

future, we need to keep on expanding our Sears Grand concept which is getting very

good reviews from customers. Sears Grand can be compared to a Wal-Mart Supercenter

because it carries many of the same types of products. An advantage to Sears Grand in

relation to Wal-Mart is that Sears Grand carries many of the brand name clothing, tools,

appliances, etc. that are unique to Sears. We are carrying new clothing product lines that

will appeal to a broader base of customers. We believe that Sears Grand is our answer to

the sustained growth of our competitive position in the retail industry.

8) How could you improve its business-level strategy to strengthen its competitive

       One way that we could improve our business-level strategy and essentially

strengthen our competitive advantage is by greater differentiation of our products. The

decision to differentiate a product increases the perceived value to the customer, so that

market demand for the product increases (Hill and Jones 154). We believe that the

differentiation of our products will lead to increased demand and it will increase our

economies of scale. Sears has many unique products but we can increase our R&D

funding in order to develop new technologies and achieve greater differentiation. In turn,

we will lower our cost structure and unit costs. We also believe that our current growth

strategy with Sears Grand will lead to increasing economies of scale as our concept

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                                                                                         - 20 -

expands. Sears Grand will enable our company to offer a high-quality shopping

experience for our customers and it will strengthen our competitive advantage. We can

also work on increasing our customer responsiveness in order to gain more customers and

increase demand. Just recently, we decided to venture into online sales of home

furnishings and apparel (See Appendix C). We are currently pioneering technologies in

virtual software that enables the customer to create an outfit or decorate a room with

accessories then add the products to a shopping cart and have them shipped to their


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