Business level strategy

BUSINESS LEVEL STRATEGY
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BUSINESS LEVEL GENERIC STRATEGY
 Michael Porter’s Generic Strategies
Low cost leadership strategy
Broad differentiation strategy
Focus strategy
Best cost provider strategy

PORTER’S GENERIC STRATEGIES
 Low cost leadership strategy
 It is also known as low cost provide strategy, cost
leadership strategy or low cost strategy
 When a company adopts a strategy of selling its
products at a price lower than its competitors, this
strategy is known as low-cost strategy.

PORTER’S GENERIC STRATEGIES: LOW COST
LEADERSHIP STRATEGY
 A company may achieve cost advantage by-
 Doing a better job than competitors recognizing internal
value chain activities
 Taking initiative to cut down costs of value chain
activities
 Recognizing the value chain to avoid some cost
producing activities.

LEADERSHIP STRATEGY
 Benefits to business organization
 Overcoming threats from competitors
 Effective dealing with powerful suppliers
 Facing powerful buyers effectively
 Overcoming threats from the entry of potential
competitors

LEADERSHIP STRATEGY
 Market situations favorable for low cost strategy
 The brand differences is minor
 A large number of price sensitive buyers
 Few ways to achieve product differentiation
 Switching cost is low
 Large number of buyers with significant bargaining
power
 Price competition is tough
 Favorableness of company’s position

LEADERSHIP STRATEGY
 Reasons for failure of low cost strategy-
 May invite aggressive price cutting by
competitors.
 Competitors can easily imitate the strategy
 If low cost product does not contain enough
attributes
 The emergence of technological breakthrough

LEADERSHIP STRATEGY
 Strategic choices of low cost provider
 Low level of product differentiation
 Mainly target the average customers
 Developing distinctive competence in
manufacturing
 Developing skills in flexible manufacturing, just in
time (JIT), TQM etc.
 Emphasizing on strict production control and
rigorously use budget controls

PORTER’S GENERIC STRATEGIES: BROAD
DIFFERENTIATION STRATEGY
 Differentiation strategy
 It is concerned with product differentiation
 It is the act of designing a set of meaningful
differences to distinguish the company’s offerings
form competitors’ offerings.
 The goal of this strategy is to achieve competitive
advantage.
 It may be either broad or focused differentiation
strategy.

 The ways to achieve product differentiation
 Differences in quality
 Innovation
 Responsiveness to customers
 Responding to customers’ psychological desires
 Wide choice of customers

DIFFERENTIATION STRATEGY (MAJOR THEMES FOR
DIFFERENTIATING)
Themes Examples of applicability
Unique taste Foods products (Bread, chocolate etc)
Multiple features BMW and Mercedes-Benz, Microsoft
office 2000
Wide selection/one stop
shopping
Agora and Meena Bazaar etc.
Special features Transparent ball pen or soap
Full range of service Apollo Hospital; Lab Aid

 Sustainability of differentiation strategy:
 Hard or expensive for competitors to copy
 Has to be linked to core competencies
 Basing differentiation on new products,
technological superiority, comprehensive customer
service
 Differentiation must be value to the customers

 Suitability of differentiation strategy-
 Ways for differentiation
 Buyers’ perception
 Diversity in needs
 Various differentiation approaches
 Rapid technological changes and innovation
 Competition around rapidly evolving product
features

 Shortcomings of differentiation strategy-
 Attributes with little value
 Easy to copy
 Inability to benefit buyers
 Over-differentiation
 Failure to understand buyers
 Buyers’ satisfaction with basic product

PORTER’S GENERIC STRATEGIES: FOCUS
STRATEGY/ MARKET-NICHE STRATEGY
 The concept of focus strategy
 It concerns with the identification of a niche market
 A niche market is a narrow segment of a total
market
 A company usually follows focus strategy when it is
able to serve a narrow piece of the market better
than competitors.

Examples of niche strategies
organizations Market niches
E-bay Online auctions
Porsche Sports car
Nissan motor company Mid-sized cars
Toyota motor company Small-sized cars: CAMRY
Hallmark Greetings card with
distinctive looks
Amazon.com Online books

 Classification of focus strategy-
 Focused low cost strategy
 Focused differentiation strategy

 Focused low cost strategy
It is the strategy of entering into a niche
market at a low cost with a unique type of
product that has a special need among the
customers in the niche market.
 A company can concentrates on small-
volume custom-built products for which it has
a cost advantage.

 Focused differentiation strategy-
 It is the strategy of operating business with a
differentiated product in a chosen niche
market.
 The focuser company competes against
competitors not based on low-cost, rather
based on product differentiation.

 Requirements for effective implementation of focus
strategy-
 Developing a well defined but narrow market
 Clearer identification of competitors
 Ability to, provide adequate capital
 Designing a low cost distribution system
 Strong marketing ability and creative flair

 Favorable market situations for focus strategy-
 Consumers’ distinctive preferences
 Competitors’ apathy
 Profitable niche
 High growth potential
 Availability of different niches in the industry
 Inability or unwillingness of competitors to serve
niche market
 No risk of segment overcrowding
 Focuser’s competitive ability
 Company’s farsightedness

 Risks associated with focused strategy-
 Risks from more appealing products
 Shifting of customers’ preferences
 High attractiveness of the niche market
 Universality of customers’ needs
 Price-war
 Withering cost advantages
 Fear of low attractiveness

PORTER’S GENERIC STRATEGIES: BEST COST
PROVIDER STRATEGY
 Best cost provider strategy-
 Best cost strategy is the strategy of increasing
quality of products while reducing costs.
 It is hybrid in nature
 It balances a strategic emphasis on low cost
against a strategic emphasis on differentiation.
 It presupposes relentlessly striving to become a
lower and lower cost provider of a higher and
higher caliber product.

PROVIDER STRATEGY
 Preconditions for becoming a best-cost provider-
 Availability of resources and competitive
capabilities
 Ability to incorporate appealing features
 Ability to give good-to-excellent customer
service

PROVIDER STRATEGY
 Market situations where best cost strategy works
best-
 Buyer diversity
 Positioning advantage
 Resources and capabilities

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Business level strategy

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