Business-Level Strategy

Unit 6
 Business-Level Strategy
Business strategy refers to the steps taken by a company to gain an advantage over its competitors in a specific market segment. This
includes making choices regarding positioning, differentiation, target customers, and value creation. Business-level strategies are created to
align with the overall corporate strategy while also adapting to the unique qualities and dynamics of specific markets or industries.
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.
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
• Increased Market Share
• Higher Profit Margins
•Risks
• Price Erosion
• Imitation by Competitors
• 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
• Customer Loyalty
• Premium Pricing
• Barriers to Competitors' Entry
•Risks
• Imitation by Competitors
• 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
• Targeted Customer Base
• Cost Efficiency
•Risks
• Limited Market Size
• 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
• Enhanced Customer Loyalty
• Premium Pricing
•Risks
• Narrow Market Size
• 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.
 •Integrated Strategy
•Also known as a hybrid strategy or integrated cost leadership/differentiation strategy,
it combines elements of both cost leadership and differentiation strategies. Companies
implementing this strategy simultaneously deliver superior value to customers through
unique and differentiated offerings while maintaining cost efficiency and operational
effectiveness.
•Benefits
• Flexibility and Adaptability
• Increased Customer Satisfaction
•Risks
• Complexity
• Trade-offs
•Example
•Toyota has adopted an integrated strategy by offering a range of high-quality vehicles
with advanced technology, reliability, and innovative features, while also focusing on
cost efficiency in its manufacturing processes.
For Business-Level Strategy through “Generic
Strategies”
Refer:

https://pressbooks.lib.vt.edu/strategicmanagement/chapter/6-2-un
derstanding-business-level-strategy-through-generic-strategies/

To be discussed in class
Competitive advantage & sustainable competitive
advantage
Competitive advantage and sustainable competitive advantage are related concepts in strategic
management, but they differ in terms of their duration, replicability, and sustainability.
Here's a breakdown of the differences between the two:
Competitive Advantage:
Duration: Competitive advantage refers to a temporary edge that a company has over its
competitors in terms of profitability or value creation.
Replicability: Competitive advantages can often be short-lived as competitors may quickly
imitate or neutralize the advantage.
Sustainability: While competitive advantages can be beneficial in the short term, they may not
be sustainable over the long term as competitors adapt and innovate.
Sustainable Competitive Advantage:
Duration: Sustainable competitive advantage refers to a lasting and enduring edge that a
company maintains over its competitors for a prolonged period.
Replicability: Sustainable competitive advantages are more difficult for competitors to
replicate or neutralize due to their nature, whether they are based on unique resources,
capabilities, or strategic positioning.
Sustainability: Sustainable competitive advantages are designed to endure changes in the
competitive landscape and are not easily eroded over time, providing long-term benefits for
the company.
Characteristics:
Competitive Advantage: It may arise from temporary factors such as a new product
innovation, a short-term cost advantage, or a change in market conditions. It does
not necessarily lead to sustained superior performance.
Sustainable Competitive Advantage: It is built on durable strengths that competitors
cannot easily imitate or overcome. It involves developing and leveraging unique
resources, capabilities, or strategic positioning that provide a long-term edge in the
market.
Examples:
Competitive Advantage: A company may gain a competitive advantage through a
successful marketing campaign, a temporary pricing strategy, or a short-term
technological innovation.
Sustainable Competitive Advantage: Examples include strong brand loyalty,
proprietary technology, unique distribution networks, regulatory advantages, or
patents that provide enduring benefits and keep competitors at bay over the long
term.
• Competitive Advantage
Snapchat gained a competitive advantage with its innovative filters and
augmented reality features in the early stages of its development. These
features allowed users to create engaging and interactive content, attracting
a significant user base and differentiating Snapchat from other social media
platforms. However, as competitors like Instagram and Facebook replicated
similar features, Snapchat's initial competitive advantage diminished,
highlighting the temporary nature of this advantage.

• Sustainable Competitive Advantage

Coca-Cola has built a sustainable competitive advantage through its strong
brand equity and global brand recognition. The company's brand
is synonymous with quality, taste, and refreshment, which has led to
strong customer loyalty and repeat purchases over many decades.
Coca-Cola's extensive distribution network, strategic partnerships, and
marketing campaigns further reinforce its brand strength, making it
challenging for competitors to replicate. This sustainable competitive
advantage has enabled Coca-Cola to maintain its market leadership in the
beverage industry for over a century.
Strategies for emerging markets
An emerging industry is an industry that is in the early stages of development. The
product, service or technology that the emerging industry is formed around may not
be widely known by many people, and therefore may not have an operating
ecosystem or a strong customer base.
The industry life cycle consists of five different stages – start-up, growth, shakeout,
maturity, and decline. Emerging industries are part of the start-up stage because
businesses generate minimal revenue, there is a lack of a consumer base, the supply
chain is underdeveloped, and the public is unfamiliar with the new product.
An emerging industry sometimes grows rapidly, and at some point in time, it may
reach a point where further growth slackens significantly.
Let us learn some strategies for emerging markets:
 •1. Low-cost
A low-cost strategy for businesses to gain an advantage in the market by
offering low prices in comparison to their competitors. Doing so can
increase consumer demand, which can help the business increase
revenue.
•2. Differentiation
Companies can aim to provide products that are unique and different. It
will set them apart from their competitors and gain a competitive
advantage.
•3. Strategic alliance
Two or more companies can form a partnership to produce a new product
together. Instead of being a competitor with each other, companies can
work with each other to increase profits.
•4. Joint venture
A joint venture involves at least two companies coming together to form
a separate business entity to combine assets, resources, and operations.
Doing so allows companies to access a bigger market and share financial
risks.
Nowadays, many emerging industries are putting their
focus on new technologies. Examples include robotics,
virtual reality, 5G networks, blockchain technology, artificial
intelligence, and self-driving cars.
Also, emerging industries in the past are considered
well-established industries today. In the 1990s, the internet
was a new technology that became increasingly popular,
creating the dotcom bubble.
However, many dotcom businesses generated very little
revenue, and some went out of business after the burst of
the dotcom bubble. The companies that overcame
difficulties when the internet was an emerging industry are
now well-established corporations, such as Google, eBay,
and Amazon.
Strategies for mature markets
According to Thompson and Strickland, a maturing industry is an
industry that is moving from rapid growth to significantly lower
growth. It means that a maturing industry gradually moves down to
slow growth.
According to their views, in a maturing industry, at least three issues
become dominant:
• nearly all potential buyers are already users of the industry’s
products;
• market demand consists mainly of replacement sales to existing
users; and
• growth in the industry depends on the industry’s ability to attract
new buyers and motivate existing buyers to increase their use of
products.
Maturing markets may use the following strategies:
1. Pruning the product line
A firm hardly has a competitive advantage in all areas of activities and in everything. Thus, it is not
a business-wisdom to continue with such products in which the firm does not enjoy a competitive
advantage.
This necessitates pruning (eliminating) unprofitable or very-less profitable product-items from the
product line. Pruning marginal products results in cost savings. It also allows management to give
more concentration on profitable products.
2. Greater emphasis on value chain innovation
In the industry-value-chain, the major parties involved are suppliers, producers, and distributors,
Tripartite collaboration among these parties can produce excellent business results.
To streamline the various value chain activities, they can collaborate on the use of internet
technology. Their collaboration on the implementation of cost-saving innovations can also lead to
improving market competitiveness.
Overall, streamlining the industry-value-chain can have a positive impact on costs, product and
service quality, the capability to produce customized product versions, and the production cycle.
3. Cost reduction
A firm may pursue a strategy of reducing costs in all activities of the firm. Driving down unit costs
of products is an ‘absolute must’ in a maturing industry.
Costs- can be reduced, through procuring raw materials and components at a cheaper price,
eliminating low-value activities from the firm’s value chain, reorganizing/reengineering business
processes within the firm, dropping some of the intermediaries from the marketing channel, better
supply chain management, using computerized systems instead of manual systems whenever
feasible and the like.
4. Strengthening resources and capabilities
A mature market is full of stiffening competitive pressures. To combat these pressures, a firm needs to build new capabilities
as well as strengthen its resource base.
The firm can do it by adding new competencies making the competencies harder to imitate (by rivals), and making the firm’s
core competencies more adaptable to customers’ requirements.

5. Increasing sales to existing customers

in a mature market, it is difficult to increase the number of customers who are already customers of competing brands.
So, a strategy should be geared towards retaining the present customers and persuading them to increase their purchases. It is
better for a firm to increase the average sales per existing customer than trying to ‘steal away’ customers of the competitors.
For example, a restaurant may increase its average sales to its customers by adding CD/VCD Comer, cyber cafe, mobile
prepaid card counter, and even a book comer.

6. Acquisition strategy
If available, a firm in a mature market can acquire weak firms (usually managerially poor) to expand market share. An
acquisition may also provide a firm greater opportunities for greater economies of scale in production and marketing.

7. Multinational strategy
A successful firm may opt for entering into foreign markets if the domestic market matures. However, before deciding on
going international, a firm must look for those international markets where there is a potential for growth in the future.
Strategies for small and medium-sized
enterprises
Survival and growth go hand in hand for any small or medium size firms (except the Mom & Pop Shops). It is essential
for business firms to keep growing, adapt to new conditions, and tap into emerging market opportunities. The key to
growing your business effectively is to ensure that profitability is not compromised since it is a key ingredient in
determining company growth.
Strategically planning for growth not only allows business ventures to stay ahead of the competition but also helps in
retaining and developing existing human resources. This is because any lucrative business depends on the quality of
human resources exercising the successful running of that particular business. Usually, when the existing workforce is
diligent and ambitious, they will seek opportunities to enhance their skill sets and if they don’t get enough
opportunities to evolve in their career in the existing firm, they choose to move on to other organisations, which often
leads to a high attrition rate. Moreover, when the attrition rate increases, the firm will be in a state of trying to catch up
rather than leading the market.
So, before we move any further in our discussion, we must be clear about 5 key questions.
What are the core competencies of the firm? (Read more)
What does the organisation stand for?
What is the vision and the mission of the venture?
What do the customers want?
What is the short-term (1-3 years) and long-term goal (3+ years)?
Strategies that may be used by SME:

1. Developing new products with existing core competencies

In this strategy, the focus should be to diversify the product line using existing core competencies. It is always a
good option to diversify the existing product offerings using existing core competencies since the cost is lower,
the market is familiar, and we have the option to modify and further create new packages for the existing
customers. It is always easier and affordable to sell the products to existing customers since they already know
the brand. If we consider Coca-Cola or Pepsi, they had a core competency in manufacturing high quality
carbonated drinks with which they later diversified their product line by introducing new flavors like Sprite,
Mountain Dew and many more in order to compete with the substitute products.

2. Entering new markets with existing core competencies

The intention in this case is to expand into new markets and while sticking to the core competencies. It is a
comforting option when the products are already tried and tested in the previous markets and if the target market
needs what the firm is offering. However, it is a time-consuming process and usually requires a high setup cost,
more effort in sales and marketing to attract new customers and can be challenging to adapt to new cultures and
meeting the needs of the new market. McDonalds is a great example in this case. Their core competency lies in
making affordable and tasty burgers. McDonalds offers a variety of vegetarian burgers and burgers without beef
in India and when we see their menu in America, the same menu is not available. This is because they have
successfully adjusted to the needs of the target markets as they make slight changes to their menu according to
the customer needs and do not deviate from their core competencies.
3. New core competency, new products, and new market
This option is a very tricky one and is a big gamble in most cases. The reason for this is simple, the company is
no longer in their comfort zone with their existing core competency. Venturing into something where the
company has no expertise can be an unfavorable position to be in. The costs are very high for obvious reasons
and there is high uncertainty in many aspects. This option will work well if the firm chooses to consider merger
and acquisitions with firms that already have the desired core competencies. A successful example in this case
is the acquisition of Whole Foods by Amazon. Amazon being an online seller while wholefoods having physical
grocery stores across America. Both acquiring different core competencies and proving to be successful
because of the synergy and strategic planning.
Furthermore, it is highly recommended to analyse the performance of the venture regularly. There are various
tools like SWOT, VRIO, PESTEL and others which can be very useful to keep track of an organisation's
progress.
Lastly, SMEs must focus on strategically growing their business in order to survive and at the same time be
aware that growing too fast or too soon could be a big problem as well. Therefore, a balanced approach must
be adopted while considering growth opportunities.
new product - same market
same product - new market
new product - new market
Refer to the following:
https://drive.google.com/file/d/1SbCqci4h3RgrGp8-GuMlHQJT35IXCF
5H/view?usp=sharing

https://drive.google.com/file/d/1Pu6U8J4mcIYZ0YnGU1ZxDJjSav4otIp
u/view?usp=sharing