Unit 8:

Business Level Strategies

Business Strategy
Competitive strategy and is
concerned more with how a
business competes successfully
in the chosen market. Outlines
the competitive posture of its
operations in the industry.
 Industry
a collection of firms
offering goods or services
that are close substitutes
of each other. Industry
consists of firms that
directly compete with
each other.
 Industry Structure
refers to the number and size dis-
tribution of firms in an industry.
The number of firms in an
industry may run into hundreds
or thousands.
 Four elements of industry structure

1. Concentration - It means the extent to which industry sales are dominated

by only a few firms.
2. Economies of scale - This is an important determinant of competition in
an industry. Firms that enjoy economies of scale can charge lower prices
than their competitors, because of their savings in per unit cost of
production.
3. Product differentiation - Real perceived differentiation often intensifies
competition among existing firms.
4. Barriers to entry - Obstacles that a firm must overcome to enter an
industry, and the competition from new entrants depends mostly on entry
barriers.
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 Positioning of the Firm
A prime strategic decision is to identify the target
audience. Competitive positioning is thus the choice
of differential advantage that the product or
services will possess against its competitors.
 There are two-stage proces:
• Identify the segment gaps
• Identify positioning within segments.

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 Identification of Segment Gaps and their
Competitive Positioning Implications.
• E merges by exploring where there are gaps in
the segment of an industry.
• map out the current segmentation position and
then place companies and their products into the
segments.

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 Identifying the Positioning within
the Segment
The process of developing positioning runs as follows:

1. Perceptual mapping: In-depth qualitative research on actual and prospective customers

on the way they make their decisions in the marketplace, e.g. strong versus weak, cheap
versus expensive, modern versus traditional.
2. Positioning: Brands or products are then placed on the map using the research
dimensions.
3. Options development: Take existing and new products and use their existing strengths
and weaknesses to devise possible new positions on the map.
4. Testing: First with simple statements with customers, then at a later stage in the
marketplace.
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 Generic Strategies
Generic strategies were first out-
lined in two books from Michael
Porter of Harvard Business
School.
These were “Competitive Strategy”
in 1980 and “Competitive Advan-
tage’’ in 1985.
 Professor Porter argued that the three
basic strategies open to any business
are:
1. Cost leadership
2. Differentiation
3. Focus.
Cost Leadership
Strategy whereby a firm aims to deliver its
product or service at a price lower than that of
its competitors. Overall cost leadership is
achieved by the firm by maintaining the
lowest costs of production and distribution
within an industry and offering “no-frills”
products.
Cost leadership requires:
1. Aggressive construction of efficient scale facilities
2. Vigorous pursuit of cost reductions from
experience
3. Tight cost and overhead control
4. Avoidance of marginal customer accounts
5. Cost minimization in all activities in the firm’s
value chain, such as R&D, services, sales
force, advertising etc.
Differentiation Strategy
Consists of offering a product or
service that is perceived as unique
or distinctive by the customer. It
can be more profitable than a cost
leadership strategy because of the
premium price.
Products can be differentiated in a
number of ways:
1. Superior quality
2. Special or unique features
3. More responsive customer service
4. New technologies
5. Dealer network.
For successfully carrying out the differentiation
strategy,
the following are required:
1. Creative flair
2. Engineering skills
3. R&D capabilities
4. Innovative marketing capabilities
5. Motivation for innovation
6. Corporate reputation for quality or technological
capabilities.
 There are two problems associated with
differentiation strategies:
1. It is difficult to estimate whether the extra
costs incurred in differentiation can be
recovered from the customer by charging a
higher price.
2. The successful differentiation may attract
competitors to copy the differentiated product
and enter the market segment.
Focus Strategy
Occurs when a firm focuses on a
specific niche in the market place and
develops its competitive advantage by
offering products especially developed for
that niche. It targets a specific consumer
group (e.g. teenagers, babies, old people
etc.) or a specific geographic market(urban
areas, rural areas etc.).
The focus strategy has two variants:

1. Cost focus: A firm seeks to achieve

low cost position in its target segment
only.
2. Differentiation focus: A firm seeks to
differentiate its products in its target
segment only.
some problems with the focus strategy:
1. By definition, the niche is small and may not be
large enough to justify attention.
2. Cost focus may be difficult if economies of scale
are important in an industry such as the
car industry.
3. The niche is clearly specialist in nature and may
disappear over time.
Risks in Competitive Strategies
No one competitive strategy is guaranteed
for success. Some companies that have
successfully implemented one of Porters’
competitive strategies have found that they
could not sustain the strategy. Each of
these generic strategies has its own risks.
 
 1. Risks of cost leadership:
(a) Cost leadership may not be sustained
(i) If competitors imitate
(ii) If technology changes
(iii) If other bases for cost leadership erode.
(b) Proximity in differentiation is lost.
(c) Cost focusers achieve even lower costs in
segments.
2. Risks of differentiation:
(a) Differentiation may not be sustained
(i) If competitors imitate.
(ii) If features of differentiation become less important
to buyers.
(b) Cost proximity is lost.
(c) Firms that follow focus strategy may achieve even
greater differentiation in segments.
(d) Dilution of brand identification through product-line.
 3. Risks of Focus:
The competitive risks of focus strategy are similar to those
previously
noted for cost leadership and differentiation strategies,
with the following additions:
(a) Focus strategy is not sustained if competitors imitate it.
(b) The target segment may become structurally
unattractive.
(i) if structure erodes.
(ii) if demand disappears.
(c) Competitors may successfully focus on an even smaller
segment of the market, out focusing the focuser, or focus
only on the most profitable slice of the focuser’s chosen
segment.
(d) An industry-wide competitor may recognize the
attractiveness of the segment served by the focuser and
mobilize its superior resources to better serve the segment’s
need.
(e) Preferences and needs of the narrow segment may
become more similar to the broad market, reducing or
eliminating the advantage of focusing.
 
Hybrid strategies
combination of generic strategies, for
example, simultaneous pursuing of both low
cost leadership and differentiation strategy.
Research has found that such hybrid
strategies have contributed to competitive
advantage in some situations.
Comment on Porter’s Generic Strategies
✓Low-cost Leadership
1. If the option is to seek low-cost leadership, then how can more than
one company be the low-cost leader?
2. Competitors also have the option to reduce their costs in the long
term
3. It should be associated with cutting costs per unit of production.
4. It assumes that technology is relatively predictable, if changing.
5. Cost reductions only lead to competitive advantage when customers
are able to make
comparisons.
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Differentiation
1. Differentiated products are assumed to be higher
priced.
2. The company may have the objective of
increasing its market share.
3. Porter discusses differentiation as if the form this
will take in any market will be immediately
obvious.

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Focus
1. The distinction between broad and narrow targets is
sometimes unclear.
2. For many companies, it is certainly useful to
recognise that it would be more productive to pursue a
niche strategy, away from the broad markets of the
market leaders.
3. As markets fragment and product life cycles become
shorter, the concept of broad targets may become
increasingly redundant.
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Business Tactics
   Tactics should work with a firm’s strategy and
they are the set of requirements need for the
plan to take place. A tactic is a device used by
the firm for meeting your goals set by your
strategy.
Strategy and tactics should always be relative
to one another because the tactics are the set
of actions needed to fulfill your strategy.
 1. Tactics are the tools used to achieve
goals.
2. Tactics include things like advertising
and marketing.
3. Tactics are the steps taken to achieve
goals.

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Brand Management
One tactic that almost every firm
employs is strategic brand management.
Brand management includes good
advertising and public relations to
present an image of that is consistent
with the mission and vision of the
company.
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Diversification and Specialization
Two different business strategies that deal with the scope
of a company are
 diversification
 Specialization

A business can diversify by simply expanding its

products and services, such as adding a new division, or
through merging or acquiring another business.

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Research and Development
Some firms use investments into research and development as a
major tactic to get ahead of competitors. This is particularly
true in the manufacturing field, where new product
technologies can save money and produce products that will
excite consumers. Smaller businesses may lack the money or
in-house talent to invest directly in research and development,
but for larger companies the ability to innovate can be the
difference between success and failure.

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Risk Management
Managing risk is a tactic that every firm
employs in its own way. The simple act of
founding a business is itself a risk, since
market trends and customer behavior can be
difficult to predict. For an established
business, managing risk means making good
decisions about where to invest funds and
what types of products to focus on.
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Thanks for
Listening.
Reporter:
Gigante Marilu
Gonzales Nicole Ann
Iglesia Florigien