Chapter-4

Business Level Strategy

What is Business level strategy?

Business level strategies are detail

action taken to provide customer value
and gain competitive advantage by
exploiting core competencies in
specific, individual product or service
market.
 Generic Strategies

Basic types of business level strategies based on breadth of

target market (industry wide versus narrow market segment)
and type of competitive advantage (low cost versus
uniqueness).
Michael Porter presented three generic strategies that a firm can
use to overcome the five forces and achieve competitive
advantage.
1. Overall Cost Leadership
2. Differentiation
3. Focus
 Competitive Advantage

Uniqueness perceived Low cost position

by the customer

Industry Differentiation Overall Cost

Leadership
Strategic Target

Wide

Particular Focus
Segment
Overall Cost Leadership:

overall cost leadership, is based on creating a low-cost-

position. Here, a firm must manage the relationships
throughout the value chain and lower costs throughout the
entire chain.

Overall cost leadership requires a tight set of interrelated

tactics that include:
Aggressive construction of efficient-scale facilities.
Vigorous pursuit of cost reductions from experience.
 Tight cost and overhead control.
 Cost minimization in all activities in the firm’s value chain,
such as R&D, service, sales force, and advertising.
Differentiation:
As the name implies, a differentiation strategy consists of creating
differences in the firm’s product or service offering by creating
something that is perceived industry wide as unique and valued by
customers.
Differentiation can take many forms:
• Prestige or brand image (Adam’s Mark hotels, BMW
automobiles).
• Technology (Martin guitars, Marantz stereo components, North
Face camping equipment).
• Innovation (Medtronic medical equipment, Apple’s iPhones and
iPads).
• Features (Cannondale mountain bikes, Honda Goldwing
motorcycles).
• Customer service (Nordstrom department stores, Sears lawn
equipment retailing).
• Dealer network (Lexus automobiles, Caterpillar earthmoving
equipment).
Focus:
A focus strategy is based on the choice of a narrow competitive
scope within an industry. A firm following this strategy selects a
segment or group of segments and tailors its strategy to serve
them. The essence of focus is the exploitation of a particular
market niche.
Example:
LinkedIn created a strategy that focuses on individuals who wish
to share their business experience and make connections with
individuals with whom they share or could potentially share
business ties.
 Which competitive strategy is best?

Before selecting one of Porter’s generic competitive

strategy for a company or business unit management
should assess its feasibility in terms of company or
business unit resources and capabilities. Porter lists
some of the commonly required skills and resources
as well as organizational requirements.
Generic Required skills & Organizational
strategy Resources requirements
Overall • Sustained capital • Tight cost control
cost investment and access • Frequent, detailed
leadership to capital control report.
• Process engineering • Structured
skill. organization and
• Intense supervision of responsibilities
labor. • Incentives based on
• Product designed for meeting strict
ease of manufacture. quantitative targets.
• Low cost distribution
system
Generic Required skills & Organizational
strategy Resources requirements
• Strong marketing • Strong coordination
abilities. among functions in
• Product engineering. R&D, product
Differentia
tion • Creative flair. development, and
• Strong capability in marketing.
basic research. • Subjective measurement
• Strong cooperation and incentives instead of
from channels. quantitative measures.
• Amenities to attract
highly skilled labor,
scientists, or creative
Generic Required skills & Organizational
strategy Resources requirements
• Combination of the • Combination of the
above policies above policies directed at
directed at the the particular strategic
Focus
particular strategic target.
target.
Potential Pitfalls of overall cost leadership and Differentiation
strategy

Overall Cost leadership

1. Too much focus on one or a few value-chain activities

2. All rivals share a common input or raw material.
3. The strategy is imitated easily
4. A lack of parity in differentiation.
5. Erosion of cost advantages when the pricing information
available to customer.
 Differentiation

1. Uniqueness is not valuable

2. Too much differentiation.
3. The price premium is too high.
4. Differentiation that is easily imitated.
5. Perceptions of differentiation may vary between buyers and
sellers.
 Industry Life Cycle Stages

The industry life cycle refers to the stages of introduction,

growth, maturity, and decline that occur over the life of an
industry.

Why are industry life cycles important? The emphasis on

various generic strategies, functional areas, value-creating
activities, and overall objectives varies over the course of an
industry life cycle.
Introduction Growth Maturity Decline
Strategic Management.pdf - Adobe Reader
Strategies in the Introduction Stage:
In the introduction stage , products are unfamiliar to consumers.
Market segments are not well defined, and product features are
not clearly specified. The early development of an industry
typically involves low sales growth, rapid technological change,
operating losses.

Success requires an emphasis on research and development and

marketing activities to enhance awareness.
Strategies in the Growth Stage:
The growth stage is characterized by strong increases in sales.
Such potential attracts other rivals. In the growth stage, the
primary key to success is to build consumer preferences for
Specific brands. This requires-

Strong brand recognition,

Differentiated products,
and the financial resources to support a variety of value-chain
activities such as marketing and sales, and research and
development.
Strategies in the Maturity Stage:
In the maturity stage aggregate industry demand softens. At the
same time, rivalry among existing rivals intensifies because of
fierce price competition at the same time that expenses
associated with attracting new buyers are rising.
Two positioning strategies that managers can use to affect
consumers’ mental shifts
Are-
1. Reverse positioning and
2. Breakaway positioning
1. Reverse positioning:
A break in industry tendency to continuously augment products,
characteristic of the product life cycle, by offering products with
fewer product attributes and lower prices.

For example: Lux soap added different features such as Lux

Silk, Lux Rose etc.
2. Breakaway Positioning: A break in industry tendency to
incrementally improve products along specific dimensions,
characteristic of the product life cycle, by offering products that
are still in the industry but that are perceived by customers as
being different.

For Example: Fair & lovely Men

Strategies in the Decline Stage:
The fourth stage of the product life cycle, characterized by (1)
falling sales and profits (2) increasing price competition, and (3)
industry consolidation.

From the following strategies any one can be used at the Declining
stage
1. Maintaining
2. Harvesting
3. Exiting the market
4. Consolidation
1. Maintaining : Maintaining refers to keeping a product going
without significantly reducing marketing support,
technological development, or other investments, in the hope
that competitors will eventually exit the market.

2. Harvesting: a strategy of wringing as much profit as

possible out of a business in the short to medium term by
reducing costs.
3. Exiting the market : involves dropping the product from a
firm’s portfolio. If the firm’s exit involves product markets
that affect important relationships with other product markets
in the corporation’s overall portfolio, an exit could have
repercussions for the whole corporation. For example, it may
involve the loss of valuable brand names

4. Consolidation: a firm’s acquiring or merging with other

firms in an industry in order to enhance market power and
gain valuable assets