Business Level Strategy

Exploration and Production, Refining, Petrochemicals, Retail, Telecommunications

Levels of Strategy

Corporate level

Business Level

Functional/Departmental level

Levels of Strategy

Definition Example

Corporate Strategy

Market Definition Diversification into new product or geographic market

Business Strategy Market Navigation Secure competitive advantage in existing product/geographic market

Functional Strategy

Support of Business/Corporate

Information Systems. Human Resource Practices and Production Processes

Business Level Strategy

Business-Level Strategies

It is an integrated and coordinated set of commitments and actions designed to provide value to customers and gain a competitive advantage by exploiting core competencies in specific, individual product markets.

Source: Hitt et al (2012), Strategic Management: A South-Asian Perspective

Purpose-Business-Level (BL) Strategies

Two types of competitive advantage firms must choose between

Cost (Are we LOWER than others?)

Uniqueness (Are we DIFFERENT? How?)

Two types of competitive scope firms must choose between

Broad target

Narrow target

These combine to yield 5 different BL strategies

Five Business-Level Strategies

Source: Hitt et al (2012), Strategic Management: A South-Asian Perspective

Willingness to Pay

Supplier Opportunity Cost

Industry Average competitor

Successful Differentiated competitor

Successful Low-cost competitor

Competitor with dual advantage

Types of Competitive Advantage

1. Cost Leadership

Cost Leadership

Economies of Scale

Learning and Experience

Proprietary Knowledge

Lower Input Costs

Unique/Different Business Model

Cost Leadership (CL)

Competitive advantage

The low-cost leader operates with margins greater than competitors

Competitive scope

Broad (industry-Wide)

A firm that successfully implements a

cost leadership strategy can earn above-average returns even when the

five competitive forces are strong.

Cost Leadership (CL) - FIVE Forces:

Rivalry against existing competitors Bargaining Power of Buyers

(Customers)

Bargaining Power of Suppliers

Potential Entrants

Product Substitutes

Cost Leadership (CL) - FIVE Forces: Rivalry against existing competitors

Bargaining Power of Buyers (Customers) Bargaining Power of Suppliers

Potential Entrants

Product Substitutes

Cost Leadership (CL) - FIVE Forces: Rivalry against existing competitors

Bargaining Power of Buyers (Customers)

Bargaining Power of Suppliers Potential Entrants

Product Substitutes

Cost Leadership (CL) - FIVE Forces: Rivalry against existing competitors

Bargaining Power of Buyers (Customers)

Bargaining Power of Suppliers

Potential Entrants Product Substitutes

Cost Leadership (CL) - FIVE Forces: Rivalry against existing competitors

Bargaining Power of Buyers (Customers)

Bargaining Power of Suppliers

Potential Entrants

Product Substitutes

Competitive Risks-Cost leadership Strategy

Source of cost advantage becomes obsolete

Focus on cost may cause the firm to overlook important customer preferences

Imitation

2. Differentiation

Differentiation

Product Features

Reliability/Quality

Convenience

Brand

2. Differentiation

Competitive advantage

Differentiated product with a higher WTP

Competitive scope

Broad (Industry-Wide)

A firm that successfully implements a

differentiation strategy can earn above-average returns even when the

five competitive forces are strong.

Differentiation - Five Forces

1. Rivalry against existing competitors

Differentiation - Five Forces

2. Bargaining Power of Buyers

(Customers)

Differentiation - Five Forces

3. Bargaining Power of Suppliers

Differentiation - Five Forces

4. Potential Entrants

Differentiation - Five Forces

5. Product Substitutes

Competitive Risks of the differentiation strategy

Customers determine that the cost of differentiation is too great

The means of differentiation may cease to provide value for which customers are willing to pay

Focus Strategies

Focus Strategies

Why???

May lack resources to compete in the broader market

May be able to more effectively serve a narrow market segment than larger industry-wide competitors

Large firms may overlook small niches

3. Focused Cost Leadership

3. Focused Cost Leadership

Competitive advantage: Low-cost

Competitive scope: Narrow industry segment

4. Focused Differentiation

4. Focused Differentiation

Competitive advantage: Differentiation

Competitive scope: Narrow industry segment

Risk of using Focus strategies

A competitor may be able to focus on a more narrowly defined competitive segment and "outfocus the focuser

A company competing on an industry-wide basis may decide that the market segment served by the focus strategy firm is attractive and worthy of competitive pursuit

Customer needs within a narrow competitive segment may become more similar to those of industry-wide customers as a whole

5. Integrated Cost Leadership and Differentiation

5. Integrated CL/Differentiation

Efficiently produce products with differentiated attributes

Efficiency: Sources of low cost

Differentiation: Source of unique value

Can adapt to new technology and rapid changes in external environment

Three sources of flexibility useful for this strategy