Contents

Strategy Definition.......................................................................................................................................2
Four Basic Strategies...................................................................................................................................2
Increasing Profitability.................................................................................................................................2
Adding Value...........................................................................................................................................2
Lowering cost..........................................................................................................................................3
Increasing Profit growth..............................................................................................................................3
Value Creation.............................................................................................................................................3
differentiation strategy............................................................................................................................4
Low-cost strategy....................................................................................................................................4
Global standardization................................................................................................................................4
Localization..................................................................................................................................................4
Transnational...............................................................................................................................................5
International................................................................................................................................................5
Strategy Definition

A firms strategy refers to the actions that managers take to attain the goal of the firm.

A firm needs to pursue strategy that increases profitability and profit growth.

Profitability is the rate of return the firm makes on its invested capital, while profit growth is the
percentage increase in net profits over time.

Four Basic Strategies

To increase profitability and profit growth firms can

1.Add Value

2.Lower Costs

3.Sell more in existing markets

4.Expand Internationally

Increasing Profitability

Managers can increase the profitability of the firm by pursuing strategies that lower costs or by pursuing
strategies that add value to the firm's products, which enables the firm to raise prices.

Adding Value

Adding value enable firms to increase profitability by raising prices. Value can be added to products by
adding new features, increasing overall quality, giving after sell service etc.

For example,

Without Adding value, a firm may invest 10000tk, and sell overall products for 12000tk, and end-up with
an overall profitability of 2000tk.

With Value Addition, the firm may invest 10000tk, and sell overall products for 15000tk, and end-up
with an overall profitability of 5000tk.

Resulting an increase in profit of 3000tk

Lowering cost

Lowering cost enables firms to increase their profits by reducing the cost of their production. Firms can
lower their cost of production by achieving economies of scale, location economies, leaning experience

For example,

Without lower cost strategy, A firm may invest 10000tk, and sell overall products for 12000tk, and end-
up with an overall profitability of 2000tk.

With applying low-cost strategy, the firm may invest 8000tk, and sell overall products for 12000tk, and
end-up with an overall profitability of 4000tk.

Resulting an increase in profits of 2000tk

Increasing Profit growth

Managers can increase the rate at which the firm's profits grow over time by pursuing strategies to sell
more products in existing markets or by pursuing strategies to enter new markets.

Profit growth strategy can increase overall profit by selling more in existing markets and by expending to
international markets

For example,

If a firm in 2019 sold 500 units for 100tk each, the firm will end up with a profitability of 50000tk

Without profit growth strategy, the firm will end the same amount of sells and same amount of profit
next year

With profit growth strategy, the firm may increase their sells quantity to 700 units for 100tk each, and
end up with a profitability of 7000tk

Resulting an overall increase in profits of 3000tk

Value Creation

A firm’s value creation is the difference between the price that the firm can charge for a product given
competitive pressure; V, and the cost of producing that product; C, (V – C).

The more value a firm creates the faster it can attain its goal.

Value can be added in two ways

differentiation strategy
Differentiation strategy, that focuses primarily on increasing attractiveness of product to increase
profits.

Suppose,

without using any strategy, the price a firm can charge for a product is, V = 10tk, the cost of producing
that product is C = 5tk, So the value creation is (V – C) = (10 – 5) = 5tk

With using differentiation strategy, the price that a firm can charge for the product increase to V = 12tk,
the cost of producing the product may stay same as 5tk, so the value creation now becomes ( V – C) =
(12 – 5) = 7tk.

Low-cost strategy
low-cost strategy, that focuses primarily on lowering production cost for increasing profitability.

Suppose,

without using any strategy, the price a firm can charge for a product is, V = 10tk, the cost of producing
that product is C = 5tk, So the value creation is (V – C) = (10 – 5) = 5tk

with low-cost strategy, the price a firm can charge for a product will be same as before, V = 10tk, the
cost of producing that product will reduce to, C = 3tk, so the value creation now becomes, (V – C) = (10 -
3) = 7tk.

Global standardization

Because there is high pressure for cost reduction and a low pressure for local responsiveness

Firms adopting this strategy tries to increase profits by focusing on cost reduction though achieving
economies of scale, location economies, and learning effects.

A popular company using this strategy is Samsung

Localization

Because there is high pressure of local responsiveness and low presser of cost reduction

Firms adopting this strategy tries to increase profits by customizing the firm’s goods and services to the
meet the needs and preference of the local markets

A popular company using this strategy is McDonalds

Transnational

As there is both, high pressure of cost reduction and high pressure of local responsiveness

Firms adopting transnational strategy can increase profits by lowering cost through achieving economies
of scale, location economies, and leaning effect and also focusing on customizing the firm’s goods and
services to the meet the needs and preference of the local markets.

A popular company using transnational strategy is Uniliver Group

International