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Business level strategy
This document discusses various business level strategies including Michael Porter's competitive strategies of cost leadership, differentiation, and focus. It defines each strategy and provides examples of how organizations can achieve them. Cost leadership involves reducing production costs below competitors through economies of scale, technology, and raw materials. Differentiation strategy makes a product unique through innovation, quality, reliability, and customization. Focus strategy targets a niche market segment through specialized products and marketing. The document also discusses Porter's five forces model of competition and how to analyze competitors and the external environment through SWOT and PESTLE analyses.
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Business level strategy
- 1. BUSINESS LEVEL STRATEGY •Mr.Ashesh Anand •Department of management •Vinoba Bhave University
- 2. BUSINESS LEVEL STRATEGY BusinessLevel strategy Michel Porters competitive Analysis Cost Leadership Differentiation Strategy Focus Strategy Best cost Provider strategy
- 3. WHY BUSINESS LEVELSTRATEGY…? An organization’s core competencies should be focused on satisfying customer needs or wants in order to achieve organizational objectives. This is achieved through businesses level strategies. Business level strategies are the course of action adopted by an organization, for each of its businesses separately, to serve identified customer groups and provide value to those customers by satisfying their needs. In the process, the organization uses its competencies to gain, sustain and enhance its strategic and competitive advantage
- 4. EXTERNAL ENVIROMENTAL FACOTRS ✓Opportunities ✓ Threats ✓ Industry Competition ✓ Competitor Analysis
- 5. Reason for SWOTAnalysis • It is an easy-to-use tool for developing an overview of a company’s strategic situation • It forms a basis for matching your company’s strategy to its situation • It provides an overview of the strategic situation. • It provides the “raw material” to do more extensive internal and external analysis.
- 6. WEAKNESS These weaknesses arecompany characteristics that place a company at a disadvantage relative to others. In other words: they are harmful to a company. Weaknesses could for example be a lack of patent protection, poor reputation among customers, a small working capital, bad leadership and an inefficient production process. Weaknesses are best discovered by having enough feedback loops in place, both internally and externally. Think about sending out customer surveys and organizing monthly employee gatherings.
- 7. STRENGTH company’s strengths areits characteristics that give it an advantage over others (competitors). Sometimes these strengths are also referred to as unique selling points (USPs), firm-specific advantages (FSAs) or competitive advantage. The source of these strengths are resources and capabilities that are valuable, rare, hard-to-imitate and organization-wide supported. Examples of valuable company resources are patents, a strong brand reputation, a new innovative product, a talented workforce, historically developed know-how and large financial reserves
- 8. • An OPPORTUNITYis a chance for firm growth or progress due to a favorable juncture of circumstances in the business environment. • Possible Opportunities: ✓Emerging customer needs ✓Quality Improvements ✓Expanding global markets ✓Vertical Integration This Photo by Unknown Author is licensed under CC BY-SA
- 9. • A THREATis a factor in your company’s external environment that poses a danger to its well-being. Possible Threats ✓New entry by competitors ✓Changing demographics/shifting demand ✓Emergence of cheaper technologies ✓Regulatory requirements
- 10. Opportunities and Threats forma basis for EXTERNAL analysis • By examining opportunities, you can discover untapped markets, and new products or technologies, or identify potential avenues for diversification. • By examining threats, you can identify unfavorable market shifts or changes in technology, and create a defensive posture aimed at preserving your competitive position.
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- 12. The purpose of Five-ForcesAnalysis • The five forces are environmental forces that impact on a company’s ability to compete in a given market. • The purpose of five-forces analysis is to diagnose the principal competitive pressures in a market and assess how strong and important each one is.
- 13. Threat of New Entrants Threatof New Entrants Porter’s Five Forces Model of Competition
- 14. Threat of NewEntrants Barriers to Entry Expected Retaliation Government Policy Economies of Scale Product Differentiation Capital Requirements Switching Costs Access to Distribution Channels Cost Disadvantages Independent of Scale
- 15. Bargaining Power of Suppliers Threat of NewEntrants Threat of New Entrants Porter’s Five Forces Model of Competition
- 16. Bargaining Power ofSuppliers Suppliers exert power in the industry by: * Threatening to raise prices or to reduce quality Powerful suppliers can squeeze industry profitability if firms are unable to recover cost increases Suppliers are likely to be powerful if: Supplier industry is dominated by a few firms Suppliers’ products have few substitutes Buyer is not an important customer to supplier Suppliers’ product is an important input to buyers’ product Suppliers’ products are differentiated Suppliers’ products have high switching costs Supplier poses credible threat of forward integration
- 17. Bargaining Power of Buyers Threatof New Entrants Threat of New Entrants Bargaining Power of Suppliers Porter’s Five Forces Model of Competition
- 18. Bargaining Power ofBuyers Buyers compete with the supplying industry by: * Bargaining down prices * Forcing higher quality * Playing firms off of each other Buyer groups are likely to be powerful if: Buyers are concentrated or purchases are large relative to seller’s sales Purchase accounts for a significant fraction of supplier’s sales Products are undifferentiated Buyers face few switching costs Buyers’ industry earns low profits Buyer presents a credible threat of backward integration Product unimportant to quality Buyer has full information
- 19. Threat of Substitute Products Threat of NewEntrants Threat of New Entrants Bargaining Power of Buyers Bargaining Power of Suppliers Porter’s Five Forces Model of Competition
- 20. Threat of SubstituteProducts Products with similar function limit the prices firms can charge Keys to evaluate substitute products: Products with improving price/performance tradeoffs relative to present industry products Example: Electronic security systems in place of security guards Fax machines in place of overnight mail delivery
- 21. Threat of Substitute Products Threat of NewEntrants Threat of New Entrants Rivalry Among Competing Firms in Industry Bargaining Power of Buyers Bargaining Power of Suppliers Porter’s Five Forces Model of Competition
- 22. Rivalry Among ExistingCompetitors Intense rivalry often plays out in the following ways: Jockeying for strategic position Using price competition Staging advertising battles Making new product introductions Increasing consumer warranties or service Occurs when a firm is pressured or sees an opportunity Price competition often leaves the entire industry worse off Advertising battles may increase total industry demand, but may be costly to smaller competitors
- 23. Cutthroat competition ismore likely to occur when: Rivalry Among Existing Competitors Numerous or equally balanced competitors Slow growth industry High fixed costs Lack of differentiation or switching costs High storage costs Capacity added in large increments High strategic stakes High exit barriers Diverse competitors
- 24. The Five Forcesare Unique to every Industry Five-Forces Analysis is a framework for analyzing a particular industry. Yet, the five forces affect all the other businesses in that industry.
- 25. Competitor Analysis The follow-upto Industry Analysis is effective analysis of a firm’s Competitors Competitive Environment Industry Environment
- 26. Competitor Analysis Assumptions What assumptionsdo our competitors hold about the future of industry and themselves? Current Strategy Does our current strategy support changes in the competitive environment? Future Objectives How do our goals compare to our competitors’ goals? Capabilities How do our capabilities compare to our competitors? Response What will our competitors do in the future? Where do we have a competitive advantage? How will this change our relationship with our competition?
- 27. Future Objectives How doour goals compare to our competitors’ goals? Where will emphasis be placed in the future? What is the attitude toward risk? What Drives the competitor? Competitor Analysis
- 28. What is thecompetitor doing? What can the competitor do? Future Objectives How do our goals compare to our competitors’ goals? Where will emphasis be placed in the future? What is the attitude toward risk? Current Strategy How are we currently competing? Does this strategy support changes in the competitive structure? Competitor Analysis
- 29. What does thecompetitor believe about itself and the industry? Future Objectives How do our goals compare to our competitors’ goals? Where will emphasis be placed in the future? What is the attitude toward risk? Current Strategy How are we currently competing? Does this strategy support changes in the competition structure? Do we assume the future will be volatile? Are we assuming stable competitive conditions? What assumptions do our competitors hold about the industry and themselves? Assumptions Competitor Analysis
- 30. What are thecompetitor’s capabilities? Future Objectives How do our goals compare to our competitors’ goals? Where will emphasis be placed in the future? What is the attitude toward risk? Current Strategy How are we currently competing? Does this strategy support changes in the competition structure? Do we assume the future will be volatile? Are we operating under a status quo? What assumptions do our competitors hold about the industry and themselves? Assumptions What are my competitors’ strengths and weaknesses? How do our capabilities compare to our competitors? Capabilities Competitor Analysis
- 31. Future Objectives How doour goals compare to our competitors’ goals? Where will emphasis be placed in the future? What is the attitude toward risk? Current Strategy How are we currently competing? Does this strategy support changes in the competition structure? Do we assume the future will be volatile? Are we operating under a status quo? What assumptions do our competitors hold about the industry and themselves? Assumptions Response What will our competitors do in the future? Where do we have a competitive advantage? How will this change our relationship with our competition? Capabilities What are my competitors’ strengths and weaknesses? How do our capabilities compare to our competitors? Competitor Analysis
- 32. This Photo byUnknown Author is licensed under CC BY-SA This Photo by Unknown Author is licensed under CC BY- SA
- 33. Generic strategy Strategies alloworganizations to gain competitive advantage from three different bases: cost leadership, differentiation, and focus. Porter called these base generic strategies. These strategies have been termed generic, because they can be pursued by any type or size of business firm and even by not-for-profit organizations.
- 34. COST LEADERSHIP Cost leadershipis a strategy companies use to increase efficiencies and reduce production costs below the industry average or their closest competitor.
- 35. STRATEGY TO ACHIEVECOST LEADERSHIP ✓ Economy of scale ✓ Size advantages ✓ Technology ✓ Raw material ADVANTAGES OF COST LEADERSHIP ✓ Better Profitability ✓ Market share improvement ✓ Business Sustainability ✓ More Capital ✓ Reduction in competition DISADVANTAGES OF COST LEADERSHIP ✓ Financial Cuts ✓ Product Innovation ✓ Customer Feedback ✓ Substandard Quality ✓ Not For Every Product ✓ Capital Availability ✓ Copycats
- 36. Differentiation Strategy Differentiation strategyis concerned with product differentiation. It refers to making a company’s product different from the similar products of the competitors. According to Philip Kotler, differentiation is the act of designing a set of meaningful differences to distinguish the company’s offerings (i.e., products) from competitors’ offerings. A differentiated product is unique by itself. A product can be differentiated based on its form, shape, quality, durability, reliability, repairability, style, design, or some other features of the product. A product will become differentiated from that of the competitors if its form (size, shape, or physical structure) is changed.
- 37. How Organizations CanAchieve Product Differentiation 1.Innovation. 2.Responsiveness to customers. 3.Responding to customers’ psychological desires. 4.Wide choice of customers. 5.Reliability of products. 6.Availability of spare parts/peripherals/accessories. Hill and Jones suggested several ways to achieve differentiation in a company’s products. Differences in quality.
- 38. FOCUS STRATEGY The ideabehind focus strategy is developing, marketing and selling products or services to a niche market, such as a particular type of consumer, a specific product line or a targeted geographical area. The goal of the focus strategy is to become the leader in the determined niche by serving the designated group better than anyone else out there. Your objective in focus strategy is to be the go- to brand or product for the group you're trying to reach. Focus strategy works well for businesses in a number of ways. First, because organization focusing their products and marketing on a very specific audience, you get to know them in a way that makes you better able to understand their needs. Understanding your niche group's needs means you're better
- 39. Best Cost ProviderStrategy For this segment the focus is to provide the best product at a better cost, the value for the money is the focus by incorporating good to excellent product attributes at a lower cost than rivals. The focus is to have the lowest costs and prices when compared to competitors’ attributes they offer. Low Cost Strategy Advantages of building Low cost
- 40. Low cost strategy Thisis based on the ability of the organization which can provide a product or service at a lower cost than its competitors. The assumption behind a low-cost strategy is that it acquires a substantial cost advantage over rivals that can be passed on to the customers to gain a larger profit or market share. Low-cost strategy can produce an advantage where a firm can earn a higher profit margin by selling products at the same market price as rivals. These products are aimed to be sold at a lower cost and the appeal to an average customer in a broad target market. Sometimes these products have high standards and not customized to individual customer’s tastes, needs or desires. So, for a low-cost leadership strategy is followed by modifying products as possible, the firm can provide benefits from economies of scale and experience effects. Low-cost leadership strategies can also be applied in services-based business for benefits.
- 41. Advantages of buildingLow cost The presence of a strong market can allow the firm to able to convince the rivals not to start price wars within the industry, this means the low-cost firms can set the stage for pricing discipline within the market. It is easy for low-cost firms to keep competition out of the industry through their price-cutting power, this can be a substantial obstacle to firms contemplating entry into the industry.
- 42.