This document discusses different business-level strategies that a firm can pursue to gain a competitive advantage, including cost leadership, differentiation, and focus strategies. It defines each strategy and describes the core competencies, customer needs, and actions required to successfully implement each one. The risks and benefits of each individual strategy as well as integrated strategies are also examined. Overall, the document provides an overview of the key considerations and tradeoffs involved in different business-level strategic approaches.

1. BUSINESS LEVEL STRATEGY
Prepared by : Fejina. P
Nikhil. P
Sabeena. A. P
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2. 2
Business-Level Strategy
Business-level strategy: 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.

3. What? Who? How?
• Basis of choosing a business level strategy
by determining how well a company can
compete
– What customer need will be satisfied?
– Who is to be satisfied?
– How will the need be satisfied?

4. 4
Core Competencies and
Strategy
The resources and capabilities that have
been determined to be a source of
competitive advantage for a firm over its
rivals
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
Business-levelBusiness-level
strategystrategy
StrategyStrategy
CoreCore
competenciescompetencies

5. FIVE BUSINESS LEVEL STRATGIES
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6. Business-Level Strategy
• Three basic competitive approaches:
– Cost Leadership- To outperform competitors
by doing everything it can to produce goods or
services at the lowest possible cost.
– Differentiation- The differentiated product has
the ability to satisfy a customer’s need in a
way that competitors cannot.
– Focus- Directed toward serving the needs of a
limited customer group or segment.

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Cost Leadership Strategy
An integrated set of actions designed to
produce or deliver goods or services at
the lowest cost relative to
competitors with features that are
acceptable to customers
– relatively standardized products
– features acceptable to many
customers
– lowest competitive price

8. 8
Cost Leadership Strategy
Cost saving actions required by this strategy:
– building efficient 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
– simplifying production processes

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Cost Leadership and
the Five Forces
• Rivalry - competitors avoid price wars with
cost leaders
• Buyers – shift demand to you, increase
market power
• Suppliers – increased market power, absorb
cost increases (low cost position)
• Entrants – entry barriers (scale, learning)
• Substitutes – reinvest econ profit to
maintain advantage

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Major Risks of Cost
Leadership Strategy
• There can only be one cost leader
• Technological change can eliminate
cost advantage
• Spillovers lead to imitation
• Efficiency focus may create blind
spots re: customer preferences

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Differentiation Strategy
An integrated set of actions designed by a
firm to produce or deliver goods or
services that customers perceive as
adding value
– price may exceed what the firm’s target
customers are willing to pay
– Non-commodity products
– customers value differentiated features
more than they value low cost

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Differentiation Strategy
• Add downstream value
– lower buyer cost
– raise buyer performance
• Cost
– Add value to buyer’s value: reduce
downstream processing time, search time,
transaction costs, defect rates, direct costs,
learning curves, labor, space, installation,
etc. (e.g., CRM software)

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Differentiation Strategy
Some differentiation actions required by
this strategy:
– develop new “systems” and processes
– signal and shape buyer perceptions
– quality focus
– capability in R&D
Implication - maximize human capital
contributions

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Differentiation and the
Five Forces
• Rivalry - brand loyalty to differentiated
products reduces price competition
• Buyers – differentiated products less price
elastic
• Suppliers – absorb price increases (higher
margins), pass along higher prices (buyer
loyalty)
• Entrants – must surpass proven products or
be equivalent at lower price
• Substitutes – diff raises switching costs

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Pitfalls of Differentiation
Strategies
• Differentiating on characteristics not
valued by buyers (e.g., HP)
• Over-differentiating
• Price premium is too high
• Failing to signal value
• Focusing on product instead of entire
value chain

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Focused Business-Level
Strategies
A focus strategy must exploit a narrow
target’s differences from the balance of
the industry by:
– isolating a particular buyer group
– isolating a unique segment of a
product line
– concentrating on a particular
geographic market
– finding their “niche”

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Factors Driving
Focus Strategies
• Large firms overlook small niches
• Firm may lack resources to compete in
the broader market
• May be able to serve a narrow market
segment more effectively than can
larger industry-wide competitors
• Focus may allow the firm to direct
resources to certain value chain
activities to build competitive advantage

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Major Risks of Focused
Strategies
• Firm may be “outfocused” by
competitors
• Large competitor may set its sights on
your niche market
• Preferences of niche market may
change to match those of broad market

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Advantages of Integrated
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

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Benefits of Integrated
Strategy
• Successful firms using this strategy
have above-average returns
• Firm offers two types of values to
customers
– some differentiated features (but less
than a true differentiated firm)
– relatively low cost (but now as low as
the cost leader’s price)

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Major Risks of Integrated
Strategy
• An integrated cost/differentiation
business level strategy often involves
compromises (neither the lowest cost
nor the most differentiated firm)
• The firm may become “stuck in the
middle” lacking the strong commitment
and expertise that accompanies firms
following either a cost leadership or a
differentiated strategy

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Other Business-Level Strategies
• Strategic Alliances and Partnerships
• Mergers and Acquisitions
• Vertical Integration
• Outsourcing
• Offensive and Defensive Strategies
• Web Site Strategies
• First-Mover Advantages and Disadvantages
• Business Model
• Functional-Area Strategies

23. REFERENCES
 Azhar kazmi, Business policy and strategic
management, Second edition, Tata McGraw
hill Publishing Company limited,2004
 C.N. Sontakki, Strategic Management Text
And Cases, Kalyani Publishers, New Delhi
2011.
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24. THANK YOU
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