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Business Level Strategies

Business-level strategy: an integrated and coordinated set of commitments and actions the firm uses to gain a competitive advantage by exploiting core competencies in specific product markets.

. the firm must decide whether it intends to perform activities differently or to perform different activities as compared to its rivals. To position itself.Business Level Strategies   Business-level strategies are intended to create differences between the firm’s position relative to those of its rivals.

individual product markets .Business Level Strategies Core Competencies and Strategy Core competencies The resources and capabilities that have been determined to be a source of competitive advantage for a firm over its rivals Strategy An integrated and coordinated set of actions taken to exploit core competencies and gain a competitive advantage Business-level strategy Actions taken to provide value to customers and gain a competitive advantage by exploiting core competencies in specific.

Business Level Strategies Competitive Advantage Low-cost Differentiation Broad Target Cost leadership Differentiation Competitive Scope Narrow Target Cost Focus Differentiation Focus .

Business Level Strategies Generic Strategy Overall Cost Leadership Commonly Required Skills & Resources Sustained capital investment & access to capital Process engineering skills Intense supervision of labor Products designed for ease in manufacturing Low cost distribution system Strong marketing abilities Product engineering Creative flair Strong capability in basic research Reputation for quality or technological leadership Long tradition in the industry or unique combination of skills drawn from other businesses Strong cooperation from channels Combination of the above policies directed at the particular strategic target Common Organizational Requirements Tight cost control Frequent detailed control reports Structured Firm and responsibilities Incentives based on meeting strict quantitative targets Differentiation Strong coordination among functions in R&D. scientists. or creative people Focus Combination of the above policies directed at the particular strategic target . product development. and marketing Subjective measurement and incentives instead of quantitative measures Amenities to attract highly skilled labor.

Firms must consider their value chain of primary and secondary activities and link those activities to implement a cost leadership strategy.Business Level Strategies Cost Leadership Strategies:   Firms must offer relatively standardized products with features or characteristics that are acceptable to customers at the lowest competitive price. .

and Black & Decker.Business Level Strategies Cost Leadership Strategies:  Alternative cost reduction strategies include: • • • • • Building efficient scale facilities. Avoidance of marginal customer accounts. Favorable access to raw materials.  Requirements for usage: • • • • • High relative market share (economies of purchasing). service. Design of products towards ease of manufacturing. Texas Instruments. and sales forces. Cost reductions through experience. Examples: Emerson Electronics. Cost minimization in R&D. . Establish tight cost and overhead controls. High margins are reinvested to maintain cost leadership.

Business Level Strategies Cost Leadership Strategies:  Defense against 5 competitive forces: • • • • Competitors .Buyers can at best force your prices down to that of the next lowest competitor (if they exit leaves firm as primary supplier).Allows more flexibility to cope with input cost increases.Scale economies or cost advantages usually provide substantial barriers to entry. • . Buyers . Suppliers .Low cost position allows return after competitors have competed away their profits.Low cost position allows reduction in prices to maintain price/value relationship. Substitutes . New-entrants .

Heavy investment into a low-cost approach can lock a firm into this strategy (vulnerability toward change). Rivals may successfully imitate the low-cost strategy. .Business Level Strategies Cost Leadership Strategies:  Competitive risks: • • • • Myopic viewpoint toward cost reduction (overlook buyer wants and needs).  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. Technology changes can result in cost or process breakthroughs that nullify gains.

Can’t completely ignore costs.   . Products generally cost more (offset cost of differentiation).Business Level Strategies Differentiation 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.

Generally leads to a lower market share than in the low-cost approach. Mercedes) Package design (Arizona Iced Tea)  Requirements for usage: • • • Use may require a high market share initially..e. Mercedes) Customer service (IBM or Caterpillar) Engineering design (Hewlett-Packard) Unique features Image of prestige or exclusivity (L’Oreal Cosmetics. Implies a trade-off with low-cost (i.Business Level Strategies Differentiation Strategies:  Can differentiate based on: • • • • • • Superior quality (John Deere. costs to differentiate). .

Business Level Strategies Differentiation Strategies:  Defense against 5 competitive forces: • • • • Competitors .Removes buyer power due to a lack of comparative alternatives.Allows an increase in price margins (customers willing to pay more. Buyers . New-entrants & Substitutes .Requires others to overcome customer loyalty and product uniqueness. .Decreases rivalry due to brand loyalty and resulting lower sensitivity to price. can withstand supplier price changes). Suppliers .

• 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. Buyers may decide they don’t need the special features (means of differentiation no longer provides value). When not many rivals are using the same strategy. When uses of the item are diverse.Business Level Strategies Differentiation Strategies:  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).

etc. segment of the market.Business Level Strategies Focus Strategies:   Firms can also use core competencies to serve a narrow segment of the market or a particular customer group. . 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. Primary goals of a focused strategy: • • • Focus on a particular buyer group.

Business Level Strategies Focus Strategies:  Two primary focused strategies: • Focused differentiation:  Requirements for usage similar to differentiation strategies.  Examples: Rolls Royce.Fort Howard Paper (specialty lens paper).  Defense against the five forces similar to differentiation strategies. . Fort Howard Paper. .Rolls Royce (prestige. quality. engineering design). .

3rd largest food supplier. . Stocking products only for these 8 firms Meeting their specialized needs. Locating warehouse locations based on their locations. .Business Level Strategies Focus Strategies: • Focused low-cost strategies:    Requirements for usage similar to low-cost strategies.Martin Brower. Martin Brower. limited menu.Rally’s (no frills service. serves fast food chains by: Gearing to their purchasing cycles. Defense against the five forces similar to differentiation strategies. Examples: Rally’s. White Castle. no dine-in). .

 When to use: • • • • When no rivals are in the same segment.Business Level Strategies Focus Strategies:  Competitive risks: • • • Broad range competitors may find ways to match focused firms services. Shifts in buyer preferences and needs. growth. or profitability. When industry segments differ widely in size. . Resources don’t permit operation in wide segments. When their are different groups of buyers who use the product in different ways. A competitor may find a smaller segment within the target segment (out-focus the focuser).