Business-level strategies aim to create competitive differences between a firm and its rivals. There are two types of competitive advantage - cost leadership and differentiation - and two types of competitive scope - broad and narrow. This results in five generic business-level strategies: cost leadership, differentiation, focused cost leadership, focused differentiation, and integrated cost leadership/differentiation. The document discusses each strategy in detail, outlining their goals, requirements, defenses against competition, risks, and when each strategy is most applicable.

1. EXCELLENT BUSINESS STRATEGIES
BY-S.BASAVARAJ, IRELAND
S.BASAVARAJ IRELAND

2. BUSINESS LEVEL STRATEGIES
 Business-level strategies are intended to create
differences between the firm’s position relative to
those of its rivals.
 To position itself, the firm must decide whether it
intends to perform activities differently or to perform
different activities as compared to its rivals.
S.BASAVARAJ IRELAND

3. BUSINESS LEVEL STRATEGIES
The resources and capabilities that have been
determined to be a source of competitive advantage
for a firm over its rivals
Core
competencies
Strategy
Business-level
strategy
Core Competencies and Strategy
An integrated and coordinated set of actions taken
to exploit core competencies and gain a competitive
advantage
Actions taken to provide value to customers and
gain a competitive advantage by exploiting core
competencies in specific, individual product markets
S.BASAVARAJ IRELAND

4. BUSINESS-LEVEL STRATEGIES
• PURPOSE: TO CREATE DIFFERENCES BETWEEN POSITION OF A
FIRM AND ITS COMPETITORS
• FIRM MUST MAKE A DELIBERATE CHOICE TO
• PERFORM ACTIVITIES DIFFERENTLY
• PERFORM DIFFERENT ACTIVITIES
• HOW ACTIVITIES WILL BE PERFORMED TO CREATE VALUE
• NO STRATEGY BETTER THAN OTHERS
• CONTINGENT ON INTERNAL AND EXTERNAL ENVIRONMENT
4
S.BASAVARAJ IRELAND

5. BUSINESS-LEVEL 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 GENERIC BUSINESS LEVEL
STRATEGIES
• CAN BE USED BY ANY ORGANIZATION COMPETING
IN ANY INDUSTRY
5
S.BASAVARAJ IRELAND

6. BUSINESS LEVEL STRATEGIES
Competitive Advantage
Cost Uniqueness
Competitive
Scope
Broad Target
Narrow Target
Cost leadership Differentiation
Focused Cost
leadership
Focused
Differentiation
Intergrated Cost
Leadership/
Differentiation
S.BASAVARAJ IRELAND

7. BUSINESS LEVEL STRATEGIES
 Firms must offer relatively standardized products with
features or characteristics that are acceptable to customers at the
lowest competitive price.
 Firms must consider their value chain of primary and secondary
activities and link those activities to implement a cost leadership
strategy.
Cost Leadership Strategies:
S.BASAVARAJ IRELAND

8. BUSINESS LEVEL STRATEGIES
Cost Leadership Strategies:
 Alternative cost reduction strategies include:
• Building efficient scale facilities.
• Cost reductions through experience.
• Establish tight cost and overhead controls.
• Avoidance of marginal customer accounts.
• Cost minimization in R&D, service, and sales forces.
 Requirements for usage:
• High relative market share (economies of purchasing).
• Favorable access to raw materials.
• Design of products towards ease of manufacturing.
• High margins are reinvested to maintain cost leadership.
• Examples: Emerson Electronics, Texas Instruments, and Black & Decker.
S.BASAVARAJ IRELAND

9. BUSINESS LEVEL STRATEGIES
Cost Leadership Strategies:
 Defense against 5 competitive forces:
• Competitors - Low cost position allows return after competitors have
• competed away their profits.
• Suppliers - Allows more flexibility to cope with input cost increases.
• Buyers - Buyers can at best force your prices down to that of the next
• lowest competitor (if they exit leaves firm as primary supplier).
• New-entrants - Scale economies or cost advantages usually provide
• substantial barriers to entry.
• Substitutes - Low cost position allows reduction in prices to maintain
• price/value relationship.
S.BASAVARAJ IRELAND

10. EXAMPLES OF VALUE-CREATING ACTIVITIES ASSOCIATED WITH
THE COST LEADERSHIP STRATEGY S.BASAVARAJ IRELAND

11. BUSINESS LEVEL STRATEGIES
Cost Leadership Strategies:
 Competitive risks:
• Myopic viewpoint toward cost reduction (overlook buyer wants
• and needs).
• Rivals may successfully imitate the low-cost strategy.
• Technology changes can result in cost or process breakthroughs
• that nullify gains.
• Heavy investment into a low-cost approach can lock a firm into
• this strategy (vulnerability toward change).
 When to use:
• When firm is the market or cost leader (good strategy during a
• price war).
• If widespread competition exists, using low-cost strategies
• allows winning the war of attrition.
S.BASAVARAJ IRELAND

12. BUSINESS LEVEL STRATEGIES
Differentiation Strategies:
 Goal is to provide value to customers through unique features and
characteristics of a firm’s products.
 Differentiators focus or concentrate on product innovation and
developing product features that customers value. Products
generally cost more (offset cost of differentiation).
 Can’t completely ignore costs.
S.BASAVARAJ IRELAND

13. BUSINESS LEVEL STRATEGIES
Differentiation Strategies:
 Can differentiate based on:
• Superior quality (John Deere, Mercedes)
• Customer service (IBM or Caterpillar)
• Engineering design (Hewlett-Packard)
• Unique features
• Image of prestige or exclusivity (L’Oreal Cosmetics, Mercedes)
• Package design (Arizona Iced Tea)
 Requirements for usage:
• Use may require a high market share initially.
• Implies a trade-off with low-cost (i.e., costs to differentiate).
• Generally leads to a lower market share than in the low-cost approach.
S.BASAVARAJ IRELAND

14. BUSINESS LEVEL STRATEGIES
Differentiation Strategies:
 Defense against 5 competitive forces:
• Competitors - Decreases rivalry due to brand loyalty and resulting lower
sensitivity to price.
• Suppliers - Allows an increase in price margins (customers willing to pay
more, can withstand supplier price changes).
• Buyers - Removes buyer power due to a lack of comparative alternatives.
• New-entrants & Substitutes - Requires others to overcome customer
loyalty and product uniqueness.
S.BASAVARAJ IRELAND

15. 15
Examples of Value-Creating Activities Associated with
the Differentiation Strategy S.BASAVARAJ IRELAND

16. BUSINESS LEVEL STRATEGIES
Differentiation Strategies:
 Competitive risks:
• If selling price is too high buyers may become price sensitive despite
customer loyalty or uniqueness (price differential between standardized
and differentiated product is too high).
• Buyers may decide they don’t need the special features (means of
differentiation no longer provides value).
• Rival firms may imitate the product thereby decreasing product
uniqueness.
 When to use:
• When ways exist to differentiate the product which buyers perceive
to have value.
• When uses of the item are diverse.
• When not many rivals are using the same strategy.
S.BASAVARAJ IRELAND

17. BUSINESS LEVEL STRATEGIES
Focus Strategies:
 Firms can also use core competencies to serve a narrow segment of
the market or a particular customer group.
 Primary goals of a focused strategy:
• Focus on a particular buyer group, segment of the market, etc.
• To serve a narrow target or market segment more effectively than
broad-based competitors can due to core competencies.
• Select target segments which are the least vulnerable to substitutes or
where competitors are the weakest.
S.BASAVARAJ IRELAND

18. BUSINESS LEVEL STRATEGIES
Focus Strategies:
 Two primary focused strategies:
 Focused differentiation Strategy:
o Requirements for usage similar to differentiation strategies.
o Defense against the five forces similar to differentiation strategies.
o Examples: Rolls Royce, Fort Howard Paper.
- Rolls Royce (prestige, quality, engineering design).
- Fort Howard Paper (specialty lens paper).
S.BASAVARAJ IRELAND

19. BUSINESS LEVEL STRATEGIES
Focus Strategies:
 Focused Cost Leadership strategies:
• Requirements for usage similar to low-cost strategies.
• Defense against the five forces similar to differentiation strategies.
• Examples: Rally’s, Martin Brower, White Castle.
- Rally’s (no frills service, limited menu, no dine-in).
- Martin Brower- 3rd largest food supplier, serves fast food
chains by:
Gearing to their purchasing cycles.
Locating warehouse locations based on their locations.
Stocking products only for these 8 firms
Meeting their specialized needs.
S.BASAVARAJ IRELAND

20. BUSINESS LEVEL STRATEGIES
Focus Strategies:
 Competitive risks:
• Broad range competitors may find ways to match focused firms services.
• Shifts in buyer preferences and needs.
• A competitor may find a smaller segment within the target segment
(out-focus the focuser).
 When to use:
• When no rivals are in the same segment.
• Resources don’t permit operation in wide segments.
• When their are different groups of buyers who use the product in
• different ways.
• When industry segments differ widely in size, growth, or profitability.
S.BASAVARAJ IRELAND

21. Integrated Cost Leadership/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
 Simultaneously concentrate on TWO sources of competitive
advantage: cost and differentiation – consequently…
 …must be competent in many of the primary and support
activities

22.  Integrated Cost Leadership/Differentiation
 Risks of Integrated Strategies
• Must simultaneously reduce costs while increasing
differentiation
• Harder to implement than other strategies
• Can get ‘stuck in the middle’ resulting in no advantages and
poor performance
S.BASAVARAJ IRELAND

23. Thank-You !!!!
S.BASAVARAJ IRELAND