Mattheus Biondi 29113056 YP49B

Business Strategy Chapter 4 & RM 7

Business Level-Strategy
A business-level strategy is 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. Every firm chooses at least one business-level strategy.
Thus business-level strategy is the core strategy, the strategy that the firm forms to
describe how it intends to compete in a product market. Because customers are the
foundation of successful business-level strategies and should never be taken for
granted. This chapter present information about customers that is relevant to business-
level strategies. In terms of customers, when selecting a business-level strategy the
firm determines
who will be served,
what needs those target customers have that it will satisfy
how those needs will be satisfied.
Selecting customers and deciding which of their needs the firm will try to satisfy, as
well as how it will do so, are challenging tasks. Global competition has created many
attractive options for customers, thus making it difficult to determine the strategy to
best serve them.

The Purpose of a Business Level Strategy
The purpose of a business-level strategy is to create differences between the firms
position and those of its competitors. To position itself differently from competitors, a
firm must decide whether it intends to perform activities differently or to perform
different activities.

Types of Business Level Strategies
Firms choose from among five business-level strategies to establish and defend their
desired strategic position against competitors:


Five Business-Level Strategies

Each business-level strategy helps the firm to establish and exploit a particular
competitive advantage within a particular competitive scope. How firms integrate the
activities they perform within each different business-level strategy demonstrates how
they differ from one another.

A. Cost Leadership Strategy
Cost leadership strategy is an integrated set of action taken to produce goods
or services with features that are acceptable to customers at the lowest cost,
Mattheus Biondi 29113056 YP49B
Business Strategy Chapter 4 & RM 7
relative to that of competitors. This is how firms implement a cost leadership
strategy :
1. Rivalry with existing competitors
Having the low-cost position is valuable to deal with rivals. Because of the
cost leaders advantageous position, rivals hesitate to compete on the basis
of price, especially before evaluating the potential outcomes of such
competition.
2. Bargaining power of buyers
Powerful customers can force a cost leader to reduce its prices, but not
below the level at which the cost leaders next-most-efficient industry
competitor can earn average returns.
3. Bargaining power of suppliers
The cost leader operates with margins greater than those of competitors.
Cost leaders want to constantly increase their margins by driving their
costs lower
4. Potential entrants
Through continuous efforts to reduce costs to levels that are lower than
competitors, a cost leader becomes highly efficient.
5. Product substitutes
A product substitute becomes an issue for the cost leader when its features
and characteristics. In terms of cost and differentiated features, are
potentially attractive to the firms customers.
6. Competitive risk of cost leadership strategy
The cost leadership strategy is not risk free. One risk is that the processes
used by the cost leader to produce and distribute its good or service could
become obsolete because of competitors innovations.

B. Differentiation Strategy
The differentiation strategy is an integrated set of actions taken to produce
goods or services (at an acceptable cost) that customers perceive as being
different in ways that are important to them. This is how firms using the
differentiation strategy :
1. Rivalry with existing competitors
Customers tend to be loyal purchasers of products differentiated in ways
that are meaningful to them. As their loyalty to a brand increases,
customers sensitivity to price increases is reduced. The relationship
between brand loyalty and price sensitivity insulates a firm from
competitive rivalry.
2. Bargaining power of buyers
Customers are willing to accept a price increase when a product still
satisfies their perceived unique needs better than does a competitors
offering.
3. Bargaining power of suppliers
Because the firm using the differentiation strategy charges a premium
price for its products, suppliers must provide high-quality components,
driving up the firms costs
4. Potential entrants
Customer loyalty and the need to overcome the uniqueness of a
differentiated product present substantial barriers to potential entrants.
5. Product substitutes
Mattheus Biondi 29113056 YP49B
Business Strategy Chapter 4 & RM 7
Firms selling brand-name goods and services to loyal customers are
positioned effectively against product substitutes.
6. Competitive risk of cost leadership strategy
One risk of the differentiation strategy is that customers might decide that
the price differential between the differentiators product and the cost
leaders product is too large

C. Focus Strategies
The focus strategy is an integrated set of actions taken to produce goods or
services that serve the needs of a particular competitive segment.
1. Focused cost leadership strategy
Focused on low cost, in this strategy the firms offers home furnishings for
customer that combine good design, function and acceptable quality with
low price. So, it can be a cost leader.
2. Focused differentiation strategy
This strategy focus on differentiation to cerate value for their customer.
3. Competitive risk of focus strategies
By using the cost leadership or the differentiation the company have the
same risk by using that strategy in the wider industry.

D. Integrated Cost Leadership / Differentiation Strategy
This strategy involves engaging in primary and support activities that allow a
firm to simultaneously pursue low cost and differentiation.
1. Flexible Manufacturing Systems
The goal of an FMS is to eliminate the low cost versus product variety
trade-off that is inherent in traditional manufacturing technologies. Firms
use an FMS to change quickly and easily from making one product to
making another.
2. Formation Networks
An effective CRM system provides a 360-degree view of the companys
relationship with customers, encompassing all contact points, business
processes, and communication media and sales channels
3. Total Quality Management Systems
Total Quality Management Systems is a managerial innovation that
emphasizes an organizations total commitment to the customer and to
continuous improvement of every process through the use of data-driven,
problem-solving approaches based on empowerment of employee groups
and teams.
4. Competitive Risks of the Integrated Cost Leadership/Differentiation
Strategy
The potential to earn above average returns by successfully using the
integrated cost leadership/ differentiation strategy is appealing. The
integrated strategy is becoming more common and perhaps necessary in
many industries because of technological advances and global
competition.






Mattheus Biondi 29113056 YP49B
Business Strategy Chapter 4 & RM 7

SINGAPORE AIRLINES BALANCING ACT

SIA is the most cost effective operator, on 2007 they cost per available seat kilometer
was the lowest between the other competitor such as European Airlines, US Airlines,
etc. the also successfully executes dual strategies. SIA offers world class services and
the same time is a cost leader. They offer premium class and LCC at the same time.
This airlines also never posted loss since its established in 1972. They executes dual
strategies by managing innovating in both centralized and decentralized manner,
being a technology leader and follower, achieving standardization and personalization
in its processes, and providing services excellence cost effectively.
SIA achieving service excellence cost effectively by managing two main
assets which is planes and people. They spends more than their rivals in key areas
such as : buying new aircraft, depreciating aircraft, training, labor cost on flights and
innovation. And also their spends less at partly as a consequence on : price per
aircraft, fuel maintenance and repair, salaries, sales and administration and back
office technologies.
SIA also concern in their technology that they use. Unlike many market
leaders in airlines industry, SIA engages in small improvement in functions that dont
touch the customer. SIA introduced technological break through to save cost. They
being a little pragmatic innovator also withdrew services which customers dont like
or cause problems. Like they do in 2004, SIA outsourced many of its IT functions so
it could focused on their core business.
SIA services processes like those of most other airlines. They using
standardization for personalization. SIA airlines institutionalizes personalization by
creating a services culture through recruitment, training and rewards. The crew
members gets access to personal information like name, birthday from CRM for
bringing delight to customers experience. And then, the training programs such as
transforming customer service teach cabin crews how to anticipate customer needs.
And then they also bring more crew members than competitors but these crews help
the airline provide unmatched service. Emulating SIA its not just about following its
best practices. Its all about implementing two seemingly contradictory strategies. This
involve four broad principle. First, Harness the power of your people and culture
because the competitor can easily copy your strategies and organizational culture, but
they can copy the environment in SIA. Second, make good use of technology because
technology cant transcend apparent contradictions cost effective service excellent.
Third, utilize the power of business ecosystems which is company must create
business ecosystems rather than ecosystems. Fourth, make investment decisions
strategically, this about strategic alignment not financial returns.