BUSINESS LEVEL Vishal Bhat

Bhawani Raina

STRATEGIES Harsh Saluja

 BUSINESS LEVEL
STRATEGIES
oAn organization's core competencies should be focused on satisfying
customer needs or preferences in order to achieve above average
returns. This is done through Business-level strategies
oBusiness level strategies detail actions taken to provide value to
customers and gain a competitive advantage by exploiting core
competencies in specific, individual product or service markets
oBusiness-level strategy is concerned with a firm's position in an
industry, relative to competitors and to the five forces of competition
oBusiness level strategies operate below the corporate level strategies
oThey deal with the strategies that will be used by the individual
businesses within an organization
Customers are the foundation or essence of a organization's business-level strategies.
Who will be served?, What needs have to be met?, and How those needs will be
satisfied? are determined by the senior management.
oWho are the customers?

Demographic, geographic, lifestyle choices (tastes and values), personality traits,

consumption patterns (usage rate and brand loyalty), industry characteristics, and
organizational size.

oWhat are the goods and/or services that potential customers need?

Knowing ones customers is very important in obtaining and sustaining a competitive

advantage. Being able to successfully predict and satisfy future customer needs is
important

oHow to satisfy customer needs?

Organizations must determine how to bundle resources and capabilities to form core
competencies and then use these core competencies to satisfy customer needs by
implementing value-crating strategies.
 The resources and capabilities that have been
Core
determined to be a source of competitive advantage
competencies for a firm over its rivals

An integrated and coordinated set of actions taken

to exploit core competencies and gain a competitive
Strategy advantage

Actions taken to provide value to customers and

Business-level gain a competitive advantage by exploiting core
strategy competencies in specific, individual product markets
MICHAEL PORTERS GENERIC
STRATEGIES
1. Cost leadership strategy

2. Differentiation strategy

3. Focus strategy

4. Cost provider strategy

 COST LEADERSHIP
oOrganizations compete for a wide customer based on price.

oPrice is based on internal efficiency in order to have a margin that will

sustain above average returns and cost to the customer so that
customers will purchase your product/service.

oWorks well when product/service is standardized, can have generic goods

that are acceptable to many customers, and can offer the lowest price.

oContinuous efforts to lower costs relative to competitors is necessary in

order to successfully be a cost leader.
COST LEADERSHIP
STRATEGIES
oFirms must offer relatively standardized products
with features or characteristics that are acceptable
to customers at the lowest competitive price

oFirms must consider their value chain of primary

and secondary activities and link those activities to
implement a cost leadership strategy
ALTERNATIVE COST
LEADERSHIP STRATEGIES

1 2 3 4 5

Building state Maintain tight Minimize cost Cost Avoidance of

of the art control over of sales, R&D, reductions marginal
efficient production and service. through customer
facilities (may and overhead experience. accounts.
make it costly costs
for
competition to
imitate)
 MICHAEL PORTERS FIVE
FORCES MODEL
A cost leadership strategy may help to remain profitable even with: rivalry, new
entrants, suppliers' power, substitute products, and buyers' power.
oRivalry Competitors are likely to avoid a price war, since the low cost firm will
continue to earn profits after competitors compete away their profits (Airlines).
oCustomers Powerful customers that force firms to produce goods/service at lower
profits may exit the market rather than earn below average profits leaving the low cost
organization in a monopoly positions. Buyers then lose much of their buying power.
oSuppliers Cost leaders are able to absorb greater price increases before it must
raise price to customers.
oEntrants Low cost leaders create barriers to market entry through its continuous
focus on efficiency and reducing costs.
oSubstitutes Low cost leaders are more likely to lower costs to entice customers to
stay with their product, invest to develop substitutes, purchase patents.
REASONS FOR FAILURE OF
LOW COST STRATEGY
oMay invite aggressive price cutting by competitors

oCompetitors can easily imitate the strategy

oProduct does not contain enough attributes

oThe emergence of technological breakthrough

STRATEGIC CHOICES OF
LOW COST PROVIDER
oLow level of product differentiation

oMainly target the average customers

oDeveloping distinctive competence in manufacturing

oDeveloping skills in flexible manufacturing, just in time (JIT), TQM etc.

oEmphasizing on strict production control and rigorously use budget

controls
 EXAMPLES OF COST
LEADERSHIP STRATEGY
Wal-Mart fulfils its everyday low prices strategy by offering
products more inexpensively and consistently than its
competitors. It can do this because of its large scale and
efficient supply chain

Another successful example is McDonalds. This restaurant

offers fast food at low prices through a division of labor of many
minimally skilled employees and few higher-paid managers
VALUE CHAIN
oA framework that firms can use to identify and evaluate the ways in which their
resources and capabilities can add value

oThe value of the analysis lies in being able to break the organization's
operations or activities into primary (such as operations, marketing & sales, and
service) and support ( staff activities including human resources management &
procurement) activities.

oAnalyzing the firm's value-chain helps to assess your organizations to what you
perceive your competitors value-chain, uncover ways to cut costs, and find ways
to add value to customer transactions that will provide a competitive advantage.
EXAMPLE OF VALUE-CREATING
ACTIVITIES ASSOCIATED WITH THE COST
LEADERSHIP STRATEGY
DIFFERENTIATION
oValue is provided to customers through unique features and characteristics of an organization's
products rather than by the lowest price

oThis is done through high quality, features, high customer service, rapid product innovation, advanced
technological features, image management, etc.

oIt is the act of designing a set of meaningful differences to distinguish the companys offerings form
competitors offerings

oThe goal of this strategy is to achieve competitive advantage

oIt may be either broad or focused differentiation strategy

oSome companies that follow this strategy are Rolex, Intel, Ralph Lauren
DIFFERENTIATION
STRATEGIES
oGoal is to provide value to customers through unique
features and characteristics of a firms products.

oDifferentiators focus or concentrate on product innovation

and developing product features that customers value.
Products generally cost more (offset cost of differentiation)
 DIFFERENTIATION CAN BE
BASED ON
oSuperior quality (John Deere, Mercedes)

oCustomer service (IBM or Caterpillar)

oEngineering design (Hewlett-Packard)

oUnique features

oImage of prestige or exclusivity (LOreal Cosmetics, Mercedes)

oPackage design (Arizona Iced Tea)

 MICHAEL PORTERS FIVE
FORCES MODEL
Effective differentiators can remain profitable even when the five forces
appear unattractive.
oCompetitors - Decreases rivalry due to brand loyalty and resulting lower
sensitivity to price.

oSuppliers - Allows an increase in price margins (customers willing to pay

more, can withstand supplier price changes).

oBuyers - Removes buyer power due to a lack of comparative alternatives.

oNew-entrants & Substitutes - Requires others to overcome customer

loyalty and product uniqueness.
 REASONS FOR FAILURE OF
DIFFERENTIATION STRATEGY
oAttributes with little value

oEasy to copy

oInability to benefit buyers

oOver-differentiation

oFailure to understand buyers

oBuyers satisfaction with basic product

 STRATEGIC CHOICES OF
BROAD DIFFERENTIATOR
oDifferences in quality

oInnovation

oResponsiveness to customers

oResponding to customers psychological desires

FOCUSED STRATEGIES
Companies use Focus strategies to concentrate on a
particular market, by understanding the dynamics of that
market and the unique needs of customers within it.

This helps the companies to develop uniquely low cost or

well-specified products for the market.

They tend to build strong brand loyalty amongst their

customers.
 EXAMPLE: TATA
STARBUCKS
Tata Starbucks Ltd is a 50:50 joint
venture company.

It was first launched on October

2012 in India

Tata Starbucks is targeted at urban

youths, office goers and families.

Localized menu which are loved by

the Indians.
 Focused Strategies

Focused Low Focused

Cost Differentiation
FOCUSED LOW COST
STRATEGY
It aims at securing competitive advantage by selling products at
lower prices than those of its competitors.

It concentrate on selling products at a low cost to a narrow target

segment.

The main objective is to serve niche buyers better than the rivals.

The features of the products offered are tailored according to the

need and taste of the niche buyers.
SUCCESS MANTRA

Lower investment in resources

The firm benefits from specialization
Provides scope for greater knowledge of a segment of the market
Makes entry to new markets easier and less costly
Firms using a focus strategy often enjoy a high degree of customer
loyalty
RISK INVOLVED

Limited opportunities for growth

The firm could outgrow the market
Danger of decline in the chosen segment or niche
Risk of imitation
Risk of changes in the target segment
 EXAMPLE:
GOOGLE NEXUS 5
Offers advanced features at a
price much lower than its
competitors.

Specially targeted at geeks and

software developers who want to
customize the device to a great
extent.

Value for Money (VFM) device.

FOCUSED DIFFERENTIATION
STRATEGY
Pursuing strategic differentiation within a focused market.

In the focused differentiation strategy, a company aims to

differentiate its products within a small number of target market
segments.

Focused differentiation strategy is most effective when consumers

have different preferences or requirements and when rival firms are
not attempting to specialize in the same target segment.
 EXAMPLE: APPLE IPHONE
Positioned itself as a status
symbol

Targeted at urban youths and

office goers in developed
countries

Finger Print Scanner

The only smartphone in the

world to run on the iOS platform
BEST COST PROVIDER: CORE
CONCEPT
Best cost provider strategies are a
hybrid of low cost provider and
differentiation strategies that aim at
providing desired
- quality/features/performance/service attributes while
beating rivals on price
BEST-COST PROVIDER STRATEGY
Striving to give customers more value for the money by combining
an emphasis on low cost with an emphasis on upscale differentiation
Combines low-cost and differentiation
The objective is to create superior value by meeting or beating
customer expectation on product attributes and beating their price
expectations
Keys to success:
Match close competitors on key product attributes and beat them on cost
Expertise at incorporating upscale product attributes at a lower cost than
competitors
Contain costs by providing customers a better product
ADVANTAGES OF BEST-COST
PROVIDER STRATEGY
Competitive advantage comes from matching close
competitors on key product attributes and beating them on
price
Most successful best-cost providers have skills to
simultaneously manage costs down and product quality up
Best-cost provider can often beat an overall low-cost strategy
and a broad differentiation strategy where
Customer diversity makes product differentiation the norm
Many customers are price and value sensitive
TACTICS OF BUSINESS
STRATEGIES
Tactic is a sub strategy
It is specific operating plan detailing how a strategy is to be
implemented in terms of when(timing) and where(market
location) it is to be put into action.
Two categories of tactics
- Timing (when to enter a market) and
- Market location (where and how to enter and/or defend)
TACTICS OF BUSINESS LEVEL
STRATEGY
Timing Tactics: When to make a strategic move is often as important as
what move to make.
-first-movers (i.e., the first to provide a product or service)
Advantages
(a) doing so builds an important image and reputation with buyers;
(b) early adoption of new technologies, different components, exclusive
distribution channels, etc. can produce cost and/or other advantages over
rivals;
(c) first-time customers remain strongly loyal in making repeat purchases; and
(d) moving first makes entry and imitation by competitors hard or unlikely.
-second-movers or rapid followers
-late movers (wait-and-see)
Second-movers or rapid followers
Advantages
(a) being a first-mover is more costly than imitating and only modest experience
curve benefits accrue to the leader (followers can end up with lower costs than the
first-mover under some conditions);
(b) the products of an innovator are somewhat primitive and do not live up to
buyer expectations, thus allowing a clever follower to win buyers away from the
leader with better performing products;
(c) technology is advancing rapidly, giving fast followers the opening to leapfrog a
first-mover's products with more attractive and full-featured second- and third-
generation products; and
(d) the first-mover ignores market segments that can be picked up easily.
Market Location Tactics: These fall conveniently into offensive
and defensive tactics
- Offensive tactics are designed to take market share from a competitor, while
defensive tactics attempt to keep a competitor from taking away some of our
present market share, under the onslaught of offensive tactics by the competitor

Some offensive tactics are-

Frontal Assault: going head-to-head
Flanking Maneuver: attacking a part of the market where the
competitor is weak
Encirclement: evolve from the previous two
Bypass Attack: to cut the market out from the established
defender by offering a new and superior product
Guerrilla Warfare: "hit and run"
Defensive Tactics
-Raise Structural Barriers: block avenues challengers can take in
mounting an offensive
-Increase Expected Retaliation: signal challengers that there is threat of
strong retaliation if they attack
-Reduce Inducement for Attacks: e.g., lower profits to make things less
attractive (including use of accounting techniques to obscure true
profitability). Keeping prices very low gives a new entrant little profit
incentive to enter