Business Level Strategies

Prof. Harish Padmanabhan

Foundation of Business Level Strategies
Porters Generic Business Strategies
Foundation of Business Level Strategies

A business definition lays down the framework within

which businesses can operate - provides the direction in
which business can expand or retrench.

Business Strategies aims to develop a competitive

advantage in the individual business that a company has
in its portfolio.

Business Level Strategies aims to use the resources, skill

and synergies to enhance competitive advantage.
Foundation of Business Level Strategies

Businesss Level Strategies are the courses of action

adopted by a firm for each of its businesses separately to
serve customer groups and provide value to the customer
by a satisfaction of their needs.

In the process the firm uses its competencies to gain,

sustain and enhance its strategic or competitive
advantage.
Foundation of Business Level Strategies

The two dynamic factor that determine the choice of

Competitive Business Strategy are :
Industry Structure.
Positioning of a firm in Industry.

Industry Structure :
Threat of New Entrant.
Threat of Substitute products & Services.
Bargaining Power of Suppliers & Buyers.
Rivalry among existing competitors.
Foundation of Business Level Strategies

Positioning of a Firm in Industry :

Competitive Advantage:
• Lower Cost.
• Product Differentiation.
Competitive Scope:
• Broad Target.
• Narrow Target.

When the two factors of Positioning are combined, what

results a set of generic Competitive Strategies is known
as “Business-Level Strategies.”
Porters Generic Business Strategies
Porters Generic Business Strategies

M.E.Porter has developed a matrix for classifying

Competitive Business Strategies, namely:

Cost Leadership (Low cost – Broad Target)

Differentiation (Differentiation – Broad Target)
Focus (Lower Cost or Differentiation – Narrow
Target)
Cost Leadership Business Strategy :

When the competitive advantage of a firm lies in a lower cost

of products or services relative to what the competitors have
to offer, it is termed as “Cost Leadership”

Customer prefer a lower cost product which offers same utility

as comparable to products available in market.

Cost Leadership offers a margin of flexibility to the firm to

lower price if the competition becomes stiff and still earns
more or less the same level of profit.

Eg: Gujarat Co-operative Milk Marketing Federation (GCMMF)

a) Low Cost Platform with the Brand Name
“Amul.. The taste of India.”
Cost Leadership Business Strategy :

How to achieve Cost Leadership ?

The central objective of cost leadership is “ to understand
the value chain for the product or service of a firm”. The basic
theme of achieving cost leadership is “ to ensure that the
cumulative cost across the value chain is lower than the
competitors”.
Accurate Demand Forecasting.
High Capacity Utilization.
Lower cost per unit.
High Level of Standardization.
Deploying investment in cost-saving technologies.
Cost Leadership Business Strategy :

Merits:

Low cost structure for its product & service.

Higher bargaining power of suppliers & buyers.
Threat of cheaper substitute can be offset.
Creates a barrier for new entrant.
Cost Leadership Business Strategy :

De-Merits:

Cost advantage is ephemeral (short-term).

Cost leadership is not market friendly (Dilute
Customer Focus).
Technological shifts are great threat in operation.
Relying on industrial structure is less efficient.
Differentiation Business Strategy :

When the competitive advantage of a firm lies in special

features incorporated into the product or service, which are
demanded by the customer who are willing to pay for those ,
then the strategy adopted termed as “Differentiation
Leadership”

Customer prefer a differentiated product or services when it

offers them a utility that they value and are willing to pay more
for getting such a utility.
Differentiation Business Strategy :

A differentiation firm can charge a premium price for its

product and services to gain additional customer who value
the differentiation and command customer loyalty.

A differentiated product or service stands apart in the market

and is distinguishable by the customers for its special features
and attributes.

Eg: C.K. Birla Group’s Orient Fan – offers premium ceiling fan
with stylish look and innovation using superior technology,
heavy duty machines, low wattage and other features.
Differentiation Business Strategy :

How to achieve Differentiation ?

The key objective of differentiation is “ to create value for
the customer that is unmatched by the competitors at the price
at which the differentiator firm offers its products and services
valued by customer”.
Incorporating features in product or services:
• Taste and preferences of customer.
• Lower Cost.
• Increasing Customer Satisfaction.
• Promising High Quality.
• Wide range of products.
Differentiation Business Strategy :

Merits:

Increases Customer Brand Loyalty.

Higher bargaining power of suppliers & buyers.
Negligible Threat of cheaper substitute.
Creates a barrier for new entrant.
Differentiation Business Strategy :

De-Merits:

Difficult to sustain for long term.

Fails to build Customer Value.
Price premiums too have a limit.
Over-Relying on product attributes lead to failure.
Focus Business Strategy :

Focus Business strategy essentially rely on either cost

leadership or differentiated which caters the narrow segment
of the total market, it is termed as “ Niche Business Strategy”

Focus Strategy are characterized under:

• Demographic Segmentation
(Age, Gender, Income)
• Geographic Segmentation
(Rural, Urban, Lifestyle-traditional/modern)
Focus Business Strategy :

Eg: Low Cost : T-series Pvt. Ltd. Developed low-cost strategy in

Music Industry as compared to Sony, HMV,
Venus, Tips, Magnasound, Polygram.

Eg: Differentiation : Philips India Ltd launched Flat Screen TV

with Plasma technology with integrated
Dolby Pro-logic Sound System.

Eg: Low Cost & Differentiation : Pustak Mahal’s Rapidex, series

of books to learn English &
various Regional Languages.
Focus Business Strategy :

How to achieve Focus?

Focus is essentially concerned with identifying a narrow
target in terms of market and customers. The firm seeking to
adopt a focus strategy has to locate a niche in the market where
the cost leaders and diffentirators are not operating.
Choosing specific niches by identifying gaps.
Creating superior skills for catering niche market.
Creating superior efficiency for serving niche market.
Achieve lower cost – differentiation to serve niche
market.
Develop innovative ways to manage value chain.
Focus Business Strategy :

Merits:

Concentrates in small firm or market.

Protection from competition.
Powerful buyers are likely to shift loyalties.
Creates a barrier for new entrant.
Concentrates on specialized products/services.
Focus Business Strategy :

De-Merits:

Difficult to perform & sustain for long term.

Commitment to a narrow market segment.
Risk lies in cost configuration.
Rivals in market may out focus the focus strategy.
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