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It gives the brief idea of various business level strategies prevalent.
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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