You are on page 1of 36

Business Level Strategies

1
Strategic Management Group Presentation:

Weightage 15%
Tentative Date: 19th September onwards If this is the scheduled date, then you
will have to send a soft copy of your slides a day prior (or before) this date

Grading Parameters and their Respective Weightage


Content 6%
Handling of Questions 4%
Presentation Style 3%
Slide Quality Visual Appeal 1%
Professional Conduct (Attire, Following Time Limit and 1%
Presence)

Presentation Time Limit: 25 mins (5 mins per member)


Q&A: 10 mins (Approx. 2 (or more) questions will be asked One question will
be open and the other question will be directed to a specific member only

2
Business Level Strategies:

Business-level strategies primarily focus on individual product markets - Or in


other words, customers

The word generic or Porter's generic strategies can be used for any company
in any sector - Hence, the word generic is used for these strategies

3
Business Level Strategies:

Relationship of Customers with Business-level Strategies:

A good example of business-level strategy aimed at customers is Amazon.com

The company maintains quality information about its customers

What level of services should be given to customers

What kind of requirements can arise from the perspective of a customer

4
Business Level Strategies:

This relationship can be understood using three parameters. These are:


Reach
Richness
Affiliation

Reach:

This is all about company's access and connection with customers

This parameter becomes very important if the company is targeting an industry like
social networking

For example: Facebook

Telecommunication: Bharti Airtel and Reach - This can be understood from the point of
their subscriber base
5
Business Level Strategies:

Richness:

Depth and detail of information exchange

Again an example about this can be Amazon - The company launched a contest known
as "Your Amazon Ad Contest" wherein the customers were asked to make
advertisement for Amazon

This kind of contests / approaches depict that the company follows customer-centric
business strategy

6
Business Level Strategies:

Affiliation:

How to encourage and facilitate customer interaction

Can be done very easily using an online medium - For instance, using internet
navigators

7
Business Level Strategies Who, What and How:

Who:

Market segmentation - Dividing customers into groups based upon age, income,
geography (urban or rural), gender, etc.

Our case on Bajaj Auto was targeted at young men - Example, Bajaj Pulsar

Another example can be Arihant Retail of Chennai engaged in textiles and garments -

The company emphasises on good Shopping Experience - How shopping


experience is different gender wise

8
Business Level Strategies Who, What and How:

What:

"What they want and when they want it"

Do customers want low cost with acceptable features or highly differentiated features
with acceptable cost

Customers purchase goods that create value for them - Do companies create value at
times of economic austerity?

A good example is of Hyundai Motors : The customers were allowed to return


their cars if they lost their job within 12 months

9
Business Level Strategies Who, What and How:

What:

Another example is Grand Sweets of Chennai

The company only provides fresh and high-quality food items - So as to provide
fresh food to its customers, the company donates its leftovers everyday

Because of this practice, no doubt the company is bearing a cost - But this is
outweighed by queues of customers waiting for fresh food

10
Business Level Strategies Who, What and How:

How: Matching core competences

Example: ProEnergy Services (US company) operating in the Energy industry gives
topmost priority to superior client satisfaction

Example: SAS (Statistical Analysis System) - Leader in business intelligence and analytics

Core competence for SAS is superior R&D - No competitor can match SAS with
regard to its R&D

Companies also try to understand how their current core competences can be used
for other product markets

Traditional engineering used in automotive can be used in emerging technologies


like medical technologies - Sockets for artificial shoulders

11
Business Level Strategies:

The need to have a business level strategy:

Aim: To create a suitable (rather profitable) position for itself

Understand this in the context of value chain, the company has to decide whether it
intends to perform activities differently or to perform different activities

In other words, how the company is planning to create value in their different primary
and support activities

How this can be understood?


Using an activity map

An example can be Southwest Airlines - This company using Porter's generic


strategy, that is, cost leadership is able to successfully integrate different activities

12
Business Level Strategies:

Activity mapping of Southwest Airlines:

Please refer page 87 of your textbook:

Six core strategic themes and linkages of different activities with these themes
Limited
Passenger
Service
Frequent
Reliable Connecting Precise routes
Departures dots or
activities
Highly
Very low
productive High Aircraft ticket price
ground crews Utilisation

13
Business Level Strategies:

These activities / themes help the company to achieve low-cost

It becomes challenging for competitors of Southwest Airlines to copy its model of


tightly integrated activities

It is said that when companies are able to achieve the best alignment of their activities,
Strategic Fit is achieved

14
Business Level Strategies:

Cost-Leadership versus Differentiation:

What should be the strategy?


Lower-cost than rivals or the ability to differentiate and command a premium price

So lower-cost is all about performing activities differently. In contrast, differentiation


involves performing based upon different activities

15
Business Level Strategies:

Competitive Scope:
Business-level strategies are formulated as per the different competitive scopes - Broad
target market and Narrow target market

Broad target market - This involves industry-wide basis

Narrow target market - This involves specific consumer groups - Buyers with specific
needs or for buyers of specific geographies

Hybrid Strategy:
Integrated cost leadership / differentiation strategy

Note: None of the five strategies are superior than the other - The applicability of any strategy
is contingent to the external and internal environment within which a company operates

16
Business Level Strategies:

Cost Leadership Strategy:


Reduction of costs with an acceptable level of differentiation

Process innovation is a priority - Reduction of cost with adoption of innovative


methods to cut costs

Example: Greyhound Lines Inc. - leading bus operator of US follows cost-leadership


strategy

17
Business Level Strategies:

18
Business Level Strategies:

What did Greyhound Lines do during the recession of 2008?

Attract new customers - these customers were accustomed to planes and trains - Also
used to Internet access and comfortable seats

The company aimed to attract these customers by following a strategy of acceptable


level of differentiation - Provision of Internet in bus, leather seats, additional leg room,
power outlets in every row

Economies of scale are achieved by serving 25 million passengers annually - the


economies of scale in turn allow the company to spend on acceptable levels of
differentiation

19
Business Level Strategies:

Note: Cost-leadership strategy can work out positively for a company if primary activities are
able to create more value with lower costs

Inbound and Outbound logistics become very important for a retailer following cost
leadership - For instance, Walmart

Operations (manufacturing process) is very important for a clothing retailer - For


instance, Primark opting for offshore manufacturing

20
Business Level Strategies:

Risks involved in Cost Leadership Strategy:

It is difficult to provide additional differentiation without increasing cost / price of a


product

In an attempt to cut costs, the companies can go overboard - Retailer Wal-Mart


criticised for having limited number of sales people to assist customers in their
shopping

Imitation This risk is common for all five generic strategies


A good example can be Nirma. The company entered in the detergent space in the
1980s - Nirma challenged Hindustan Lever using cost leadership which in turn was also
copied by many small competitors / local competitors

21
Business Level Strategies:

Differentiation Strategy:

This strategy is all about Product Innovation A new product or service is provided by
a company

The company adopts this strategy because it knows that the customers are able to
understand the value that the differentiated good / service provides to them
The customers are price insensitive

Customers willingness to pay a premium price is the ultimate objective of a


differentiation strategy

Note:This is a sweet spot that the companies are looking for but finding this spot is difficult

22
Business Level Strategies:

Differentiation Strategy:

In automotive sector, Lexus car is regarded to be a highly differentiated product the


product is a luxury vehicle division of Toyota

Their promotional statement is a reflection of their differentiation strategy We


pursue perfection, so you can pursue living

Product Lines and Differentiation:

Offer a portfolio of differentiated product lines In other words, products that


complement each other

23
Business Level Strategies:

Differentiation Strategy:

Some other examples Robert Talbott (American apparel company)


Creates differentiation by craftsmanship Uses the finest silk from Europe and
Asia

Apple with its designing standards

Writing instruments of Mont Blanc

24
Business Level Strategies:

Differentiation Strategy:

Note:The scope of differentiation is vast whereas the scope of cost reduction is finite Beyond
a limit, no company can cut costs

Risks involved in Differentiation Strategy:

A huge gap between the price of differentiators product and cost leaders product
By following differentiation strategy, the company should make sure that
upgradation of differentiated features takes place without drastic cost hike

Future Uncertainty Global Economic Crisis


Demand for highly differentiated goods and services is likely to fall in times of
austerity

25
Business Level Strategies:

Risks involved in Differentiation Strategy:

What companies following a differentiation strategy should do in tough times?


An example can be Coachs Poppy product line Coach is a leading New York design
house of modern luxury accessories

Coachs Poppy line is luxury for Recessionary Times

This is like a catch 22 situation The company should guard its luxury image but
at the same time cannot escape the need to reconsider its price strategy

If generic goods are providing a positive experience to a large consumer base Why
would the customers prefer differentiated goods?

Example: For instance, Kleenex facial tissues provide a lesser degree of positive
experience when compared to generic tissues
26
Business Level Strategies:

Focus Strategies:

These strategies are apt for situations when the company is intending to cater to the
needs of a particular competitive segment In other words, the company is targeting a
niche

Niche can be created in the following ways:

(a) Different geographies


(b) Product lines for different buyer groups (for instance, creative artists, DIY (Do
It Yourself, etc.)
(c) Different age groups (for instance, young or senior citizens)

27
Business Level Strategies:

Focus Strategies:

The broad-based companies prefer not to indulge their resources in such specific
segments or such specialised segments
This open-field or niche thus becomes attractive for specialised companies

For instance: Assisted living equipment for senior people like staircase lifts, mobility
scooters, etc.

Specialised banks like Kalupur Commercial Cooperative Bank Providing niche


services to farmers, smaller industrial units
By the medium of local language, flexible working days

MTR and Haldiram engaging in niche segments of food sector of countries like the US
and the UK Their local companies would not be interested in serving such a specific
consumer base
28
Business Level Strategies:

Focused Cost Leadership Strategy:

Operating in narrow markets using a focused cost leadership strategy The emphasis of
the company is primarily on cost reduction

Examples: Swedish company IKEA A global furniture retailer


The company targets young / less wealthy consumers who want to have low-cost
furniture. Functionality and acceptable levels of quality and design are also
provided

Cost reduction is achieved by depending on in-house engineers / designers who


provide parts to be assembled by the customer

Limited sales associates or decorators Customers are encouraged to make a


choice themselves and visualise different room settings by visiting the store

Self-delivery instead of home delivery 29


Business Level Strategies:

Focused Differentiation Strategy:

Operating in narrow markets using a focused differentiation strategy The emphasis of


the company is primarily on differentiation

By following this strategy, the companies themselves decide the kind of customers they
want to attract In other words, defining their boundaries for customers that are not
required

Examples: The Park Hotels (Case Discussion)

30
Business Level Strategies:

Risks involved in Focus Strategies:

Narrow market becomes a broad market It could be a scenario that the specialised
needs get converted into generic needs
If this is a case, then the competitive scope expands and the market can no more
remain niche

Example: There was a time in India when assembled computers were sold The niche
players could no longer remain in the market with the onset of branded computers that
gradually became cheaper for customers

31
Business Level Strategies:

Integrated Cost Leadership / Differentiation Strategy:

A strategy combining both cost leadership and differentiation Hence also known as
hybrid strategy

In a way, it is both about process innovation and product innovation But to a limited
extent. The companies prefer not to go overboard with either of these

Examples: Target Stores (US based company) Their punch line is Expect More, Pay Less

32
Business Level Strategies:

Risks involved in Integrated Cost Leadership / Differentiation Strategy:

This is a slightly complex strategy because the company intends to do both at the same
time Value creation by offering differentiated goods and services without raising the
price bar is challenging

There is a fear of Stuck in the Middle A situation wherein the costs are not low
enough and the differentiation does not seem to create any value for customers

Debate between the pure strategies versus hybrid strategies


Pure strategies outperform hybrid strategies If this is the case, then can we say
that integrated strategies have limited future? Or is the trend of using hybrid
strategies likely to grow?

33
The Park Hotels Case Discussion:

34
The Park Hotels Case Discussion:

Sector: Hospitality

General Questions:
1) What is a Boutique Hotel?
2) In the hospitality sector, is the focus more on product or experience?

SM Questions:
1) How can you say that the Park Hotels are following a focus differentiation strategy?
a) In contrast to the general practice followed in the hospitality sector, how sharp
differentiation is followed in the Park Hotels?
b) Size does matter In the context of this saying, how cleverly has this
hotel created a competitive scope for itself?
c) How repeat visits are encouraged by the hotel?
d) How is the hotel strategically targeting towards increasing its consumer base?
e) Has sharp differentiation safeguarded the hotel against economic crisis?
35
The Park Hotels Case Discussion:

Sector: Hospitality

36