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Business Level Strategies

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.

Business-level strategies are intended to create
differences Between the firms position relative to those
of its rivals.

To position itself, the firm must decide whether it
intends to perform activities differently or to perform
different activities as compared to its rivals.





CHOICE OF COMPETITIVE STRATEGY
INDUSTRY
STRUCTURE
POSITIONING OF
FIRM Determined by 5 forces:-
Threat of new entrant.
Low barriers raise the prospect
of new entrants pushing down
prices.
Threat of Substitute Pdt or Service.
Strong threat firms to be more
competitive
Bargaining Power of Suppliers
Push cost of imputs upwards.
Bargaining Power of Buyers.
Negotiate low prices.
Industrial Rivalry
Intense competition keeps
prices down.




Determined by 2 Variables:-
Competitive Advantage
It is ability of a firm to add more
value for its customers than its rivals
and therefore attain a position of
relative advantage.

Competitive Scope
Breadth of firms target within its
industry. For eg. Product Range,
Distribution Channels etc.
Business Level Strategies
Competitive Advantage
Low-cost Differentiation
Competitive
Scope
Broad Target
Narrow Target
Cost leadership
Superior profits
through lower
costs
Differentiation
Special features
with premium
price

Cost Focus Differentiation
Focus
Concentration on
limited market .


Generic Strategy Commonly Required
Skills & Resources
Common Organizational
Requirements

Overall Cost
Leadership

Sustained capital investment &
access to capital
Process engineering skills
Intense supervision of labor
Products designed for ease in
manufacturing
Low cost distribution system

Tight cost control
Frequent detailed control reports
Structured Firm and responsibilities
Incentives based on meeting
strict quantitative targets

Differentiation

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

Strong coordination among
functions in R&D, product
development, and marketing
Subjective measurement and
incentives instead of
quantitative measures
Amenities to attract highly
skilled labor, scientists, or creative
people

Focus

Combination of the above policies
directed at the particular strategic
target

Combination of the above
policies directed at the particular
strategic target


Business Level Strategies- Cost Leadership
Strategies







MEANING

Firms must offer relatively standardized products with
features or characteristics that are acceptable to customers at the
lowest competitive price.

Firms competes on price within Industry and earns higher unit profit.

Cost Leadership based on:-
Efficiency to drive down costs.
Effectiveness-knowing what is & what is not important to the
customers.

Beneficial in markets where customers are price sensitive.


Eg. TATA Steel, Reliance Communications.
Business Level Strategies- Cost Leadership Strategies
Sources of Cost Leadership Strategy
Building efficient scale facilities-Reduction in waste, Low Cost Supply, Production
& Labour, Relocation to new site.
Cost reductions through experience-Superior Management
Establish tight cost and overhead controls.-Greater operating efficiency & effectiveness
Accurate demand forecasting
Cost minimization in R&D, service, and sales forces-Latest Technology available.
Withholding differentiation
Advantages
High relative market share & average profits
Favorable access to raw materials.
Design of products towards ease of manufacturing- offset of threat of cheaper substitues
Effective Barrier for entry of new entrants.
Business Level Strategies- Cost Leadership Strategies
Strengths of Firms for implementing Cost Leadership
Access to capital required to make significant investments in fixed
assets.
Design Skills for effective manufacture
High Level of expertise in manufacturing process.
Effective Distribution Channel.
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.
5 FORCES & GENERIC STRATEGY-COST
LEADERSHIP
THE 5 FORCES THE COST LEADER IS
ENTRY BARRIER Cut prices and discourage new entrants
BUYER POWER Offer competitive price to buyer
SUPPLIER POWER Insulated from powerful supplier due to low costs
THREAT OF
SUBSTITUTION
Uses low price as defense against substitutes
RIVALRY Better able to compete on prices
Business Level Strategies-Differentiation Strategy
MEANING

Goal is to provide value to customers through unique features
and characteristics of a firms products.

Differentiators focus or concentrate on product innovation and
developing product features that customers value.
Customers percieve the product to be different & better than
the rival.
As a result of the value added by the uniqueness of the product
may allow the firm to charge a premium price for it.
Business Level Strategies-Differentiation Strategy
Can differentiate based on:
Superior quality & performance (DC Cars, Mercedes, Cocoberry)
Customer service (IBM)
Engineering design (Hewlett-Packard)-features that raise performance of pdt.
Unique features- Additional Features offerd to match tastes & preference
Image of prestige or exclusivity (LOreal Cosmetics, Mercedes)
Package design (Arizona Iced Tea, Parles Tetra Packs for Frooti)
Speed of Distribution & High Service Levels (Amul)
Market Conditions for differentiation
Markets where customers need are too diversed to be satisfied by standardised pdt.
Market is too large to be catered by few firms.
Customers values additional features at additional costs

Business Level Strategies-Differentiation Strategy
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).

Buyers may decide they dont need the special features (means of
differentiation no longer provides value).

Rival firms may imitate the product thereby decreasing product
uniqueness.
Benefits
Differentiation offers the prospect of charging a premium price.
Demand for differentiated pdt will be less elastic.
DS results in above average profits.
It creates additional barriers for new entrants.
Business Level Strategies-Differentiation
Strategy
Success in DS means that:-
Gaining Competitive Advantage by making their product different from
Competitors.
Competing on the basis of value added to the customers.
Persuading customers about the superiority of the firms product.
Customers willingness to pay extra price to cover high costs.

Differentiation can be based on product image, durability, after sales
service, quality, additional features, after sales.

Firm requires flair, research capability & strong marketing skills.
Extra costs to added only in areas where customers perceive to be
important & which must be recognized & difference is appreciated.
5 FORCES & GENERIC STRATEGY-
DIFFERENTIATION
THE 5 FORCES THE COST LEADER IS
ENTRY BARRIER Requires others to overcome customer loyalty and
product uniqueness.
BUYER POWER Removes buyer power due to a lack of comparative
alternatives.
SUPPLIER POWER Allows an increase in price margins (customers willing to
pay more, can withstand supplier price changes).
THREAT OF
SUBSTITUTION
Protected by customer loyalty
RIVALRY Decreases rivalry due to brand loyalty and resulting
lower sensitivity to price.
Business Level Strategies- Focus Strategy

Firms can also use core competencies to serve a narrow segment of
the market or a particular customer group.


Primary goals of a focused strategy:
Focus on a particular buyer group, segment of the market, etc.

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.
Business Level Strategies- Focus Strategy
Requirements are:-
Identification of suitable target group.
Identification of needs of that group.
Confirmation that market is large to sustain the
business.
Estimation of the extent of competition.
Production of products to meet specific needs of
the customer.
Decision to opt for Cost Leadership or
Differentiation.
Business Level Strategies- Focus Strategy
Two primary focused strategies:
Focused differentiation:
Requirements for usage similar to differentiation strategies.

Defense against the five forces similar to differentiation strategies.

Examples: Rolls Royce, Fort Howard Paper.

- Rolls Royce (prestige, quality, engineering design).
- Fort Howard Paper (specialty lens paper).
Business Level Strategies- Focus Strategy
Focused low-cost strategies:
Requirements for usage similar to low-cost strategies.

Defense against the five forces similar to differentiation strategies.

Examples: Rallys, Martin Brower, White Castle.

- Rallys (no frills service, limited menu, no dine-in).
- Martin Brower- 3rd largest food supplier, serves fast food
chains by:

Gearing to their purchasing cycles.
Locating warehouse locations based on their locations.
Stocking products only for these 8 firms
Meeting their specialized needs.
Business Level Strategies- Focus Strategy
Competitive risks:
Broad range competitors may find ways to match focused firms services.
Shifts in buyer preferences and needs.
A competitor may find a smaller segment within the target segment
(out-focus the focuser).
Limited oppurtunity of growth
Risk of imitation.
When to use:
When no rivals are in the same segment.
Resources dont permit operation in wide segments.
When their are different groups of buyers who use the product in
different ways.
When industry segments differ widely in size, growth, or profitability.
Uniqueness in the segment
Specialised requirements for using the product & service.
Potential of growth in the market.
Firm possess necessary skill & expertise.

Business Level Strategies- Focus Strategy
Advantages
Lower Investment in resources
Benefit from specialisation
Grater Knowledge of the segment.
Entry to new markets easy & less costly
High Degree of Customer Loyalty.
Tactics for Business Level Strategies
Tactic is a sub-strategy, specific operating plan detailing
how a strategy is to be implemented in terms of when &
where it is to be put in action.
Narrow in scope & Shorter in their time horizon than are
strategies.
These are:-
Timing Tactics
Market Location Tactics
Market Leaders
Market Challengers
Market Followers
Market Nichers.
Tactics for Business Level Strategies
Timing Tactics
First Movers & Late Movers
Advantages of Being a First Mover
Establish position as a market leader.
Benefit from suppliers, distribution channels & access
to new technology.
Brand Image & Reputation
Loyalty of customers
Tactics for Business Level Strategies
Disadvantages of First Movers
Costlier than being a follower.
Risky proposition-setting up business &
technological changes threat.
Late movers can imitate technological
advancements.
Additional efforts to retain customers.

Tactics for Business Level Strategies
Market Location Tactic
This aspect deals with the issue of where to
compete.
Market Leaders
The organisations that have largest market share in the
relavant product market lead the market in
technological developments, product & service
attributes, price benchmarks or distribution channel
design.
Tactics for Business Level Strategies
Market Location Tactic
Market Challengers
The org. ranked second or lower in the industry . These
either challenge the market or wish to follow them.
Market Followers
The org. that imitate the market leaders and benefit
out of the innovations made by market leaders.
Market Nichers
These organisations are the ones which cover the pdt/
service segment which is left untouched by other
organisations.

Business Strategies for Different
Industry Conditions
Embryonic Stage
Unique product offering developed and patented, thus
beginning a new industry.
Firm uses focus strategy to stress the uniqueness of the new
product or service to a small group of customers
Customers are known as "innovators" and "early adopters."
Costly -- New product offering, developed and tested , and
marketed the product. Significant cash outlay to continue to
promote and differentiate the offering and expand the
production flow from a job shop to possibly a batch flow.
Profits--Negative at this stage. Any profits generated are
typically reinvested.
eg Biotech, Cyber Media, Drug Development, Organic Foods.

Business Strategies for Different
Industry Conditions
Growth
Aim-- Differentiate a firm's offerings from other competitors within
the industry.
Costly--Funds required to launch a newly focused marketing
campaign and continuous investment in property, plant, and
equipment to facilitate the growth required by the market demands
Product Standardisation--Encouraging economies of scale and
facilitate development of a line-flow layout for production efficiency.
Life Cycle Curve--Very steep, indicating fast growth. Firms tend to
spread out geographically and continue to disperse during the
maturity and decline stages.
For eg the automobile industry in the United States,IT, Mobile.
Duration--Depends on the industry for eg fad clothing,
experience short growth stage and move almost immediately
into the next stages of maturity and decline or Hot toy this
holiday season may be nonexistent after few months.

Business Strategies for Different
Industry Conditions
Maturity
Curve--Curve becomes noticeably flatter, indicating slowing
growth.
Threat--Competition from late entrants .The marketing effort
to be strong and must stress the unique features of the
product or the firm to continue to differentiate a firm's
offerings wrt quality, cost from industry competitors to
increase the volume of sales and make profits from inventory
turnover.
No. of firms--Fewer firms, and those that survive will be
larger and more dominant.
For eg. Outsourcing Industries, Steel, Textile Industries,
Laundry detergents are examples of mature products
Business Strategies for Different
Industry Conditions
Decline
Meaning--Inevitable in an industry, if product innovation has not
kept pace with other competitors, or if new innovations or
technological changes have caused the industry to become
obsolete, sales suffer and the life cycle experiences a
decline.Larger shake-out in the industry as competitors who did
not leave during the maturity stage now exit the industry.
Also referred to as sick industries.
Mergers and consolidations will also be the norm as firms try
other strategies to continue to be competitive or grow through
acquisition and/or diversification.
For eg, beedi manufacturers, crackers, mining, print media etc.