Business Strategies

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Unit 2

Business-Level Strategy Types


Porter's generic strategies outline the methods through which companies strive to
position themselves within their selected market domain. The first high-level decision
to make is how you want to attract customers:
 with a lower price of your product
 with your product being different from the competition

If you choose to offer your product at a lower price than your competition, then you
have chosen a cost leadership strategy. In case you decide to make products different
from those the competition offers, then we are talking about a differentiation strategy.

Developing your business strategy further, you should choose a competitive scope and
whether you want to focus on:

 Broad market - offering your products to a diverse market


 Narrow market - offering your products to a niche market

Combining these two approaches can further refine the business strategy into a focused
cost leadership strategy and a focused differentiation strategy.

Business level strategy examples


Let us have a more detailed look at several different types of business-level strategies.

Cost Leadership Strategy

This business strategy relies on offering products at a low cost thus becoming the least
expensive producer or provider of goods and services in a particular industry. To
achieve this, companies need to cut costs across the entire value chain, so they can offer
their products or services at lower prices than rivals. By being cost leaders, businesses
can draw in customers who are looking for affordable products, expand their market
share, and possibly increase their profits.

Benefits

1. Increased Market Share


2. Higher Profit Margins

Risks

1. Price Erosion
2. Imitation by Competitors
3. Technological Changes

Example

McDonald's utilizes this strategy in the fast-food industry, optimizing its processes,
streamlining operations, and delivering standardized products at affordable prices.

Differentiation Strategy

Differentiation strategy focuses on offering products or services perceived as superior


or distinct from competitors. Companies pursuing differentiation aim to provide unique
value, features, quality, innovation, customer service, or brand image that set them
apart in the eyes of customers.

Benefits

1. Customer Loyalty
2. Premium Pricing
3. Barriers to Competitors' Entry

Risks

1. Imitation by Competitors
2. Cost Structure

Example

Apple differentiates itself in the technology industry through its focus on sleek design,
intuitive user interfaces, seamless integration of hardware and software, and premium
quality, creating a distinct and loyal customer base.

Focused Cost Leadership Strategy

Companies using this business strategy gain an advantage in cost within a particular
and specific market segment. They concentrate on serving a specific group of customers
with affordable products. This allows them to optimize their operations, processes, and
products to create cost-efficient solutions that meet the specific needs of their
customers.

Benefits

1. Targeted Customer Base


2. Cost Efficiency

Risks

1. Limited Market Size


2. Market Changes

Example

Southwest Airlines (with a focus on regional routes) adopts this strategy by offering
low-cost flights on regional routes. By operating with a streamlined business model,
high aircraft utilization, and efficient operations, Southwest Airlines provides cost-
effective air travel options to customers in specific markets.

Focused Differentiation Strategy

A focused differentiation strategy concentrates on delivering unique and specialized


products or services to a specific market segment. Companies try to differentiate
themselves in the targeted niche through superior quality, innovation, customization,
customer experience, or unique features.

Benefits

1. Enhanced Customer Loyalty


2. Premium Pricing

Risks

1. Narrow Market Size


2. Evolving Customer Preferences

Example

Tesla (with a focus on electric vehicles) has differentiated itself in the automotive
industry by offering high-performance electric vehicles with advanced technology,
sustainability, and sleek design. By targeting customers seeking environmentally
friendly and cutting-edge transportation solutions, Tesla has established a leadership
position in the electric vehicle market.

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