BUSINESS LEVEL STRATEGIES

Business Strategy
Business strategy focuses on improving the competitive position of a companys or business units products or services within the specific industry or market segment that the company or business unit serves. It can be:
Competitive: battling against all competitors for advantage Cooperative: working with one or more competitors to gain advantage against other competitors.

Dynamic factors that determine the choice of a competitive strategy:

Industry Structure:
Determined by the competitive forces

Positioning of firm in industry:

Competitive Advantage
Lower cost Differentiation

Competitive Scope:
It is the breadth of an organizations target within its industry. Range of products, distribution channels, types of buyers, geographic areas etc.

Porters Competitive Strategies

Competitive strategy raises the following questions:
Should we compete on the basis of low cost (and thus price), or should we differentiate our products or services on some basis other than cost, such as quality or service? Should we compete head to head with our major competitors for the biggest but most sought after share of the market, or should we focus on a niche in which we can satisfy a less sought after but also profitable segment of market?

Porters Generic Business Strategy

Broad target

Cost Leadership

Differentiation

Narrow target

Focused Cost Leadership

Focused Differentiation

Low Cost Differentiated products/services products/services

COMPETITIVE ADVANTAGE

Classification of business strategy

1.Cost leadership 2. Differentiation 3. Focus (Lower cost/differentiation)

Cost Leadership Business Strategy

When the competitive advantage of an organization lies in its lower cost of products or services relative to what competitors have to offer, it is termed as cost leadership. The organization outperforms its competitors by offering products or services at a lower cost then they can. Cost leadership offers a margin of flexibility to the organization to lower the price if the competition becomes stiff.

Achieving Cost Leadership

1. Accurate demand forecasting and high capacity utlisation to realise cost advantages 2. Attaining economies of scale leads to lower per unit cost of product/service 3. High level of standardisation of products 4. Aiming at average customers 5. Investment in cost saving technologies 6. Withholding differentiation till it becomes absolutely necessary

Condition under which Cost leadership is used 1. The market for the product/service operate in such a way that price based competition is vigorous, making costs an important factor. 2. The product/service is standardised and its consumption takes place in such a manner that differentiation is superfluous. 3. The buyers may be large and posses a significant bargaining power to negotiate price reduction 4. There is lesser customer loyalty and the cost of switching is low 5. There may be few ways for differentiation to take place.

Benefits associated with Cost Leadership Strategy

1. Best insurance against industry competition 2. Less affected from powerful supplies bargaining power 3. Threat of cheap substitutes can be offset 4. Cost advantage acts as an effective entry barrier for potential entrants

Differentiation Business Strategy

When the competitive advantage of an organization lies in special features incorporated into the product/service which is demanded by the customers, who are willing to pay for it, then the strategy adopted is the differentiation strategy. A differentiated product or service stands apart in the market A diferentiator organization can charge a premium price for its products/services

Achieving Differentiation
1. Incorporating features that offer utility for the customer and match her tastes and preferences 2. Incorporating features that lower the overall cost in using the product/service 3. Incorporating features that raise the performance of the product 4. Incorporating features that increase the buyer satisfaction 5. Features that offer the promise high quality 6. Enabling customer to claim distinctiveness

Conditions under which differentiation is used 1. The market is too large to be catered to by few organizations offering a standardised product/service 2. The customer needs and preferences are too diversified to be satisfied by a standardised product/service 3. Possibility for an orgn to charge a premium price for differentiation that is valued by the customer. 4. The nature of the product is such that brand loyalty is possible to generate and sustain 5. Ample scope for increasing the sale of the product on the basis of differentiated features and premium pricing.

Focus Business Strategy

Focus business strategies essentially rely on either cost leadership or differentiation, but cater to a narrow segment of the total market. Focus strategies are niche strategies Commonly used bases for identifying customer groups are demographic characteristics, geographic segmentation or life style

Conditions under which focus strategies are used 1. There is some type of uniqueness in the segment which could either be geographical, demographic or based on lifestyle 2. Specialised requirement for using the product/service 3. Niche market is big enough to be profitable 4. Potential for growth in the niche segment 5. Major players not interested in the niche 6. Focusing orgn has the skill and expertise to serve the niche 7. Focusing orgn can guard is turf