business level strategy

Business - Level StrategyBusiness - Level Strategy

Presented by:Presented by:

Kapil RajputKapil Rajput

Nikunj PatelNikunj Patel

Kaushal DhakanKaushal Dhakan

Kulvinder DhaliwalKulvinder Dhaliwal

Pranay ChauhanPranay Chauhan

Chetan PanaraChetan Panara

Jay AjudiyaJay Ajudiya

Business Level StrategiesBusiness Level Strategies

Business-level strategies are intended to create Business-level strategies are intended to create differences between the firm’s position relative differences between the firm’s position relative to to those of its rivals.those of its rivals.

To position itself, the firm must decide whether To position itself, the firm must decide whether it it intends to perform activities differently or to intends to perform activities differently or to perform perform different activities as compared to its rivals.different activities as compared to its rivals.


The resources and capabilities that have been determined to be a source of competitive advantage for a firm over its rivals

CoreCorecompetenciescompetencies

StrategyStrategy

Business-levelBusiness-levelstrategystrategy

Core Competencies and Core Competencies and Strategy

An integrated and coordinated set of actions taken to exploit core competencies and gain a competitive advantage

Actions taken to provide value to customers and gain a competitive advantage by exploiting core competencies in specific, individual product markets

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Business-Level StrategiesBusiness-Level Strategies

Purpose: To create differences between Purpose: To create differences between position of a firm and its competitorsposition of a firm and its competitors

Firm must make a deliberate choice to Firm must make a deliberate choice to Perform activities differentlyPerform activities differently Perform different activitiesPerform different activities

How activities will be performed to create valueHow activities will be performed to create value

No strategy better than othersNo strategy better than others

Contingent on internal and external environmentContingent on internal and external environment

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Business-Level StrategiesBusiness-Level Strategies

Two types of Two types of competitive advantagecompetitive advantage firms firms must choose betweenmust choose between Cost (Are we Cost (Are we LOWERLOWER than others?) than others?) Uniqueness (Are we Uniqueness (Are we DIFFERENTDIFFERENT? How?)? How?)

Two types of ‘Two types of ‘competitive scope’competitive scope’ firms must firms must choose betweenchoose between Broad targetBroad target Narrow targetNarrow target

These combine to yield 5 different generic These combine to yield 5 different generic business level strategiesbusiness level strategies Can be used by any organization competing in any Can be used by any organization competing in any

industryindustry


Competitive Advantage

Cost Uniqueness

CompetitiveScope

Broad Target

Narrow Target

Cost leadership Differentiation

Focused Cost

leadership

FocusedDifferentiation

Intergrated Cost Leadership/ Differentiation


Firms must offer relatively standardized products with features or characteristics that are acceptable to

customers at the lowest competitive price.

Firms must consider their value chain of primary and secondary

activities and link those activities to implement a cost leadership

strategy.

Cost Leadership Strategies:



Alternative cost reduction strategies include:

• Building efficient scale facilities.• Cost reductions through experience.• Establish tight cost and overhead controls.• Avoidance of marginal customer accounts.• Cost minimization in R&D, service, and sales forces.

Requirements for usage:

• High relative market share (economies of purchasing).• Favorable access to raw materials.• Design of products towards ease of manufacturing.• High margins are reinvested to maintain cost leadership.• Examples: Emerson Electronics, Texas Instruments, and Black & Decker.



Defense against 5 competitive forces:• Competitors - Low cost position allows return after competitors have competed away their profits.

• Suppliers - Allows more flexibility to cope with input cost increases.

• Buyers - Buyers can at best force your prices down to that of the next lowest competitor (if they exit leaves firm as primary supplier).

• New-entrants - Scale economies or cost advantages usually provide substantial barriers to entry.

• Substitutes - Low cost position allows reduction in prices to maintain price/value relationship.

Examples of Value-Creating Activities Associated with the Cost Examples of Value-Creating Activities Associated with the Cost Leadership StrategyLeadership Strategy



Competitive risks:

• Myopic viewpoint toward cost reduction (overlook buyer wants and needs).• Rivals may successfully imitate the low-cost strategy.• Technology changes can result in cost or process

breakthroughs that nullify gains.• Heavy investment into a low-cost approach can lock a firm into this strategy (vulnerability toward change).

When to use:

• When firm is the market or cost leader (good strategy during a

price war).• If widespread competition exists, using low-cost strategies allows winning the war of attrition.

Business Level StrategiesBusiness Level StrategiesDifferentiation Strategies:

Goal is to provide value to customers through unique features and

characteristics of a firm’s products.

Differentiators focus or concentrate on product innovation and

developing product features that customers value. Products

generally cost more (offset cost of differentiation).

Can’t completely ignore costs.


Can differentiate based on:

• Superior quality (John Deere, Mercedes)• Customer service (IBM or Caterpillar)• Engineering design (Hewlett-Packard)• Unique features • Image of prestige or exclusivity (L’Oreal Cosmetics, Mercedes)• Package design (Arizona Iced Tea)

Requirements for usage:

• Use may require a high market share initially.• Implies a trade-off with low-cost (i.e., costs to differentiate).• Generally leads to a lower market share than in the low-cost approach.


Differentiation Strategies:

Defense against 5 competitive forces:

• Competitors - Decreases rivalry due to brand loyalty and resulting lower sensitivity to price.

• Suppliers - Allows an increase in price margins (customers willing to pay more, can withstand supplier price changes).

• Buyers - Removes buyer power due to a lack of comparative alternatives.

• New-entrants & Substitutes - Requires others to overcome customer loyalty and product uniqueness.

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Examples of Value-Creating Activities Associated with the Examples of Value-Creating Activities Associated with the Differentiation StrategyDifferentiation Strategy


Competitive risks:

• If selling price is too high buyers may become price sensitive despite customer loyalty or uniqueness (price differential between standardized and differentiated product is too high).

• Buyers may decide they don’t need the special features (means of differentiation no longer provides value).

• Rival firms may imitate the product thereby decreasing product uniqueness.

When to use:

• When ways exist to differentiate the product which buyers perceive to have value.• When uses of the item are diverse.• When not many rivals are using the same strategy.


Focus Strategies:

Firms can also use core competencies to serve a narrow segment of

the market or a particular customer group. Primary goals of a focused strategy:

• Focus on a particular buyer group, segment of the market, etc.

• To serve a narrow target or market segment more effectively than broad-based competitors can due to core competencies.

• Select target segments which are the least vulnerable to substitutes or where competitors are the weakest.


Focus Strategies:

Two primary focused strategies:

• Focused differentiation Strategy:

Requirements for usage similar to differentiation strategies.

Defense against the five forces similar to differentiation strategies.

Examples: Rolls Royce, Fort Howard Paper.

- Rolls Royce (prestige, quality, engineering design). - Fort Howard Paper (specialty lens paper).


Focus Strategies:

• Focused Cost Leadership strategies:

Requirements for usage similar to low-cost strategies.

Defense against the five forces similar to differentiation strategies.

Examples: Rally’s, Martin Brower, White Castle.

- Rally’s (no frills service, limited menu, no dine-in). - Martin Brower- 3rd largest food supplier, serves fast food chains by:

Gearing to their purchasing cycles. Locating warehouse locations based on their locations. Stocking products only for these 8 firms Meeting their specialized needs.


Focus Strategies:

Competitive risks:

• Broad range competitors may find ways to match focused firms services.• Shifts in buyer preferences and needs.• A competitor may find a smaller segment within the target segment (out-focus the focuser).

When to use:

• When no rivals are in the same segment.• Resources don’t permit operation in wide segments.• When their are different groups of buyers who use the product in different ways.• When industry segments differ widely in size, growth, or profitability.

Integrated Cost Integrated Cost Leadership/DifferentiationLeadership/Differentiation Efficiently produce products with differentiated attributesEfficiently produce products with differentiated attributes

Efficiency: Sources of low costEfficiency: Sources of low cost

Differentiation: Source of unique valueDifferentiation: Source of unique value Can adapt to new technology and rapid changes in Can adapt to new technology and rapid changes in

external environmentexternal environment Simultaneously concentrate on TWO sources of Simultaneously concentrate on TWO sources of

competitive advantage: cost and differentiation – competitive advantage: cost and differentiation – consequently…consequently…

……must be competent in many of the primary and must be competent in many of the primary and support activities support activities

Flexible manufacturing SystemsFlexible manufacturing Systems

Information NetworkInformation Network

Total Quality Management SystemsTotal Quality Management Systems

Integrated Cost Integrated Cost Leadership/DifferentiationLeadership/Differentiation Risks of Integrated StrategiesRisks of Integrated Strategies

Harder to implement than other strategies Harder to implement than other strategies

Must simultaneously reduce costs while increasing Must simultaneously reduce costs while increasing differentiationdifferentiation

Can get ‘Can get ‘stuck in the middle’ resulting in no advantages and stuck in the middle’ resulting in no advantages and poor performancepoor performance