Chapter 5: Business-Level Strategy

• Group members:
• Nadeem Khan (19)
• Saud Momin(32)
• Masoodkhan Patwe(35)
• Ismail Sayyed (42)
• Pervez Tamboli(55)
Business-Level Strategy (Defined)
• An integrated and coordinated set of
commitments and actions the firm uses to
gain a competitive advantage by exploiting
core competencies in specific product
markets.
Customers: Business-Level Strategic Issues
• Customers are the foundation of successful
business-level strategy
 Who will be served by the strategy?
 What needs those target customers have that the
strategy will satisfy?
 How those needs will be satisfied by the
strategy?
Dimensions of customer relationship
• Firms must manage all aspects of their
relationship with customers
 Reach: firm’s access and connection to
customers
 Richness: depth and detail of two-way flow of
information between the firm and the customer
 Affiliation: facilitation of useful interactions with
customers
Reach:
Richness:
Affiliation
Affiliation
Customer Needs—Who?

Determining the Customers to Serve

Consumer Industrial
Customers
Markets Markets

Market Segmentation
Customer Needs—What?

• Customer Needs to Satisfy

 Customer needs are related to a product’s
benefits and features

 Customer needs represent desires in terms of

features and performance capabilities
Customer Needs—How?
• Determining the Core Competencies
Necessary to Satisfy Customer Needs
 Firms use core competencies to implement value
creating strategies that satisfy customers’ needs
 Only firms with capacity to continuously
improve, innovate and upgrade their
competencies can expect to meet and/or exceed
customer expectations across time
Failure in innovation, upgradation
Five Business-
Level Strategies
1. Cost Leadership Strategy
• An integrated set of actions taken to
produce goods or services with features that
are acceptable to customers at the lowest
cost, relative to that of competitors with
features that are acceptable to customers
 Relatively standardized products
 Features acceptable to many customers
 Lowest competitive price
Cost Leadership Strategy
• Cost saving actions required by this
strategy:
 Building efficient scale facilities
 Tightly controlling production costs and
overhead
 Minimizing costs of sales, R&D and service
 Building efficient manufacturing facilities
 Monitoring costs of activities provided by
outsiders
Cost Leadership
Cost Leadership Strategy: New Entrants
The Threat of • Can frighten off new
Potential Entrants entrants due to:
 Their need to enter on a
large scale in order to be
cost competitive
 The time it takes to move
down the learning curve
Cost Leadership Strategy: Suppliers

Bargaining Power
of Suppliers
• Can mitigate suppliers’
power by:
 Being able to make very
large purchases, reducing
chance of supplier using
power
Cost Leadership Strategy: Buyers

Bargaining Power • Can mitigate buyers’

of Buyers power by:
 Driving prices far below
competitors, causing them to
exit, thus shifting power with
buyers back to the firm
Cost Leadership Strategy: Substitutes

Product Substitutes • Cost leader is well

positioned to:
 Make investments to be first
to create substitutes
 Buy patents developed by
potential substitutes
 Lower prices in order to
maintain value position
Cost Leadership Strategy: Competitors

Rivalry with • Due to cost leader’s

Existing Competitors advantageous position:
 Rivals hesitate to compete on
basis of price
 Lack of price competition
leads to greater profits
Cost Leadership Strategy
• Competitive Risks
 Processes used to produce and distribute good
or service may become obsolete due to
competitors’ innovations
 Focus on cost reductions may occur at expense
of customers’ perceptions of differentiation
 Competitors, using their own core competencies,
may successfully imitate the cost leader’s
strategy
2. Differentiation Strategy
• An integrated set of actions taken to
produce goods or services (at an
acceptable cost) that customers perceive
as being different in ways that are important
to them
 Non-standardized products
 Customers value differentiated features more
than they value low cost
Differentiation strategy
Differentiation Strategy: New Entrants

The Threat of • Can defend against new

Potential Entrants entrants because:
 New products must surpass
proven products
 New products must be at
least equal to performance
of proven products, but
offered at lower prices
Differentiation Strategy: Suppliers

Bargaining Power • Can mitigate suppliers’

of Suppliers power by:
 Absorbing price increases
due to higher margins
 Passing along higher
supplier prices because
buyers are loyal to
differentiated brand
Differentiation Strategy: Buyers

Bargaining Power • Can mitigate buyers’

of Buyers power because well
differentiated products
reduce customer
sensitivity to price
increases
Differentiation Strategy: Substitutes

Product Substitutes • Well positioned relative

to substitutes because
 Brand loyalty to a
differentiated product
tends to reduce customers’
testing of new products or
switching brands
Differentiation Strategy: Competitors

Rivalry with • Defends against

Existing Competitors competitors because
brand loyalty to
differentiated product
offsets price
competition
Competitive Risks of Differentiation
• The price differential between the differentiator’s
product and the cost leader’s product becomes too
large
• Differentiation ceases to provide value for which
customers are willing to pay
• Experience narrows customers’ perceptions of the
value of differentiated features
• Counterfeit goods replicate differentiated features
of the firm’s products
3. Focus Strategies
• An integrated set of actions taken to produce goods
or services that serve the needs of a particular
competitive segment

• Types of focused strategies

 Focused cost leadership strategy
 Focused differentiation strategy

• To implement a focus strategy, firms must be able

to:
 Complete various primary and support activities in a
competitively superior manner, in order to develop and
sustain a competitive advantage and earn above-average
returns
Focused cost leadership strategy
Focused Differentiation Strategy From TATA
Factors That Drive Focused Strategies
• Large firms may overlook small niches.
• A firm may lack the resources needed to compete in
the broader market
• A firm is able to serve a narrow market segment
more effectively than can its larger industry-wide
competitors
• Focusing allows the firm to direct its resources to
certain value chain activities to build competitive
advantage
Competitive Risks of Focus Strategies
• A focusing firm may be “outfocused” by its
competitors
• A large competitor may set its sights on a firm’s
niche market
• Customer preferences in niche market may change
to more closely resemble those of the broader
market
4. Integrated Cost Leadership/
Differentiation Strategy
• A firm that successfully uses an integrated
cost leadership/differentiation strategy
should be in a better position to:
 Adapt quickly to environmental changes
 Learn new skills and technologies more quickly
 Effectively leverage its core competencies while
competing against its rivals
Integrated Cost Leadership/
Differentiation Strategy
• Commitment to strategic flexibility is
necessary for implementation of integrated
cost leadership/differentiation strategy
 Flexible manufacturing systems
 Information networks
 Total quality management (TQM) systems
Integrated Cost Leadership/
Differentiation Strategy
Risks of the Integrated Cost Leadership/
Differentiation Strategy
• Often involves compromises
 Becoming neither the lowest cost nor the most
differentiated firm
• Becoming “stuck in the middle”
 Lacking the strong commitment and expertise
that accompanies firms following either a cost
leadership or a differentiated strategy
Any Questions??