What do you choose when going shopping: an inexpensive, hardly any-queued convenience store, or a well-renowned supermarket with the best choices of fresh and nutritious food? Or, you choose to shop at the farmer’s market within the vicinity of your house and look for organic produce and other niche items?
What we are pointing out here is that you will have no lack of choices when it comes to shopping. Competitive pressure is more intense than ever before just earn a dollar from the people. Therefore, every grocer followed a distinct business-level strategy to create a competitive edge in order to attract a chunk of the global..
The no-frills convenience store lowers running costs to attract lower classed clients. In turn, the luxury store has made great strides to create a distinction with its premium grocery offerings and high-qualified customer care; consequently, it will charge a higher price.
The neighborhood supermarket, meanwhile, delivers a finely customized retail experience geared to neighborhood shoppers’ needs and tastes.
Such three strategies are illustrations of business-level strategy. You can further extend your strategy to adapt to goods or services in all industry sectors and companies of all sizes.
You may ask, what is a business-level strategy, how many business-level strategies you can choose, or even why does your business need one? Let’s find out!
What is a business-level strategy?
We can boil down the definition of a business-level strategy, a comprehensive overview that integrates the strategies, priorities, and activities of an organization. Your business-level strategy should put a high emphasis on how to provide value to consumers while retaining a competitive edge.
Michael Porter, a Harvard Business School professor, is generally considered to be the Founder of Corporate Strategy. There are three ways of business-level strategy that any company can take to achieve an edge over its rivals, according to Porter. Cost leadership, differentiation, and Focuses are these.
You can see each strategy short description as follows:
- Leader in Prices: By-running expenses to a degree below the market average, companies that seek cost leadership achieve a strategic edge. Company owners then pass on these benefits of low-priced goods or services to their clients or retain average prices to increase their profit margin.
- Differentiation: Companies that exploit a business-level differentiation approach create brand value and maintain higher prices by giving their consumers a specific product/service feature that is well-known and valued.
- Focused: Focused tactics require cost leadership or differentiation in ways that expansively-focused competitors will not accomplish within the local market.
Your business level strategy will establish your position and the path of your profitability in your industry. It would also impact the effectiveness and the way you are going to represent your client base.
Remember that no strategy is superior to one another. A company can be using either technique and still be useful. It will rely on both what your opponents are doing (the external environment) and where your advantages lay (your core competencies) to select the best holistic approach.
There are multiple strategies you can choose; sometimes, the major strategies that you can are these few outlined types of business-level strategies. But before that, you have to work out a few aspects in order to ascertain how you can execute these strategies:
- What is it that your key consumers enjoy the most? ( overall cost, brand name, goods durability, etc.)
- Are you approaching a market with a wide variety of market segments?
- What tools do you have?
- What makes you stand out from the crowd?
- Will the company have the potential to lead and maintain itself in terms of product efficiency and sustainable prices in the global market?
Putting yourself in your client’s shoes is one way to obtain insight. When shopping for clothes, for instance, what kinds of brands do you buy from? How would you rate the significance of pricing, consistency of products and production, environmental effects, brand name, etc.?
You can then try comparing these viewpoints with those of your potential clients to see how it matches up with your corporate tools to a marketing campaign. You will then be able to work out which of the following market-level approach scenarios will yield better results.
Five types of business-level strategy (with examples)
1. The Cost Leadership Strategy.
What is Cost Leadership Strategy?
As the name suggests, this approach is for companies that want to compete based on pricing for a large consumer base.
Price Leadership is often confused with the Cost Leadership approach, but both are two separate terms. A corporation that has reached the lowest cost of manufacture would not always deliver the lowest prices.
If it happens, then the corporation will have better profit margins than the average. Many firms who follow a Cost Leadership approach, though, typically compete on pricing as well, and because of low-cost control and structure, they are very effective at it.
A myth about this technique is that there are lower returns. That isn’t the case here. The company must continuously work on internal efficiencies to maintain above-average returns and have the lowest price. There are several ways to achieve this.
- High utilization of assets
High resource efficiency in the service sector refers to optimizing the service’s usage over a certain amount of time. For example, a restaurant that flips seats over very easily, compared to another restaurant in which a seat is filled for hours on end, attracts more clients who stay for shorter periods of time.
Another example may be a hair salon where the hair is done for 30 minutes instead of 60 minutes, servicing more customers in a day by decreasing the service delivery time.
High resources use in sectors involving product manufacturing requires the development of high output quantities. Typically, this is done by manufacturing vast volumes of standardized goods (mass production).
- Direct & indirect costs of operation
The decrease of direct and indirect running costs is another effect arising from high volumes of standardized goods. Manufacturing expenses are kept cheap by using a smaller number and more standard components.
However, other ways in which organizations achieve relatively low cost are by keeping wages low, renting office buildings and storage facilities in low budget areas, reducing marketing costs, exporting, etc.
- Strong command of the supply chain
Higher leverage over the supply chain is another means of maintaining reduced prices. The more closely an organization watches, the more straightforward it is to manage the operating processes (supply/procurement, financing, stock, IT, marketing, etc.)
To this end, you can, for instance, exchange lower rates with manufacturers, apply fair contract pricing, offer exclusive access to raw materials, …
It is important to remember that firms that are competitive in achieving Cost Leadership usually have considerable resources to spend in infrastructure, reliable logistics, and low materials and labor costs. In other words, this strategy demands your product or service to be standardized.
What are the benefits of a Cost Leadership Strategy?
Defensive properties: Cost leadership will help to defend the enterprise against the five competitive Porters’ forces
- Competition: Cost leadership suggests that even if your rivals have surpassed your revenue, you can still make huge profits.
- Suppliers: Cost leaders can accumulate more significant cost increases before mobilizing tthat moneyfor other needs.
- Buyers: Clients will never stop demanding you to sell goods at a lower price, especially in a competitive market. If your rivals fail to do so, this will cause them to leave the market. If this occurs, their customers will turn to your company, and you may end up in a dominant position.
- Fresh entrants: You build an obstacle to new entrants by operating on a large scale and with a relentless emphasis on cost reduction.
- Substitutes: You can build loyal clients by selling at the lowest rate.
What are the risks of Cost Leadership Strategy?
- When implementing a Cost Leadership Strategy, the most critical challenge is that these cost savings channels are not exclusive to you. As such, your cost-saving tactics can be replicated by other rivals and contend with you on costs lowering.
- You can forget what the clients really want by being so focused on cost savings.
- New technologies will lead to cost savings that can instantly destroy the competitive edge.
What are the case studies of Cost Leadership Strategy?
There are many successful case studies of cost leader strategy; however, the most unequivocally successful one is the global e-commerce leader Amazon leader. When it comes to Porter’s concept, the company’s central strategy is cost leadership
{% include image.html src=”https://i.imgur.com/j4CeGOy.jpg” alt=”What are the case studies of Cost Leadership Strategy?” caption=”What are the case studies of Cost Leadership Strategy?” %}
By implementing a wonderful Cost Leadership Strategy, Amazon achieves its strategic edge in various aspects, including:
- Extensive warehousing facilities and manufacturing capacities: Thus, Amazon is able to minimize costs by physical economies of scale.
- Advanced technology: Amazon gains optimum operating performance (and reduced costs) by leveraging advanced computing and networking innovations.
- Service automation: The organization has been able to simplify many operating procedures, including purchase management and distribution preparation.
Another case study worth mentioning here is Walmart. Walmart has continued to hold the top spot for many years consecutively on the Fortune 500 list. The company’s success is largely driven by its ‘low everyday costs’ approach and the wide variety of goods it sells.
The supermarket giant has continued to modernize its practices, which has evolved over time in the Walmart model. Here are some ways in which Walmart has successfully applied Cost-Leadership Strategy.
- A large customer base and size of service, making large revenue volumes possible.
- A highly effective method for the supply chain, maximizing production and eliminating outlays.
- Low prices for operations and overhead
- Usage of bargaining power (a very significant asset for a large-scale retailer that depends on its price advantage) allows its customers the lowest prices.
Consumers have found cheaper costs irresistible and stores trying to sell the least costs have witnessed enormous growth. All these causes outlined above have contributed to market deflation, and a further decline in retail prices seems unavoidable.
2. Focused Cost Leadership Strategy.
What is a Focused Cost Leadership Strategy?
These firms compete on costs but still stand out as they concentrate on servicing a niche market.
A company following this tactic does not usually charge the cheapest cost in the business sector. Instead, it charges low prices compared to other companies that compete inside the target audience.
For instance, you might be able to buy milk at a lower price by traveling to a big-box supermarket in your local community, but you still choose the local store because it is the cheapest within walking distance.
Popular strategies for implementing a Focused Cost Leadership Strategy include:
- Focusing on a small client community.
Claire’s, for instance, aims to cater to young people by offering cheap jewelry, shoes, and ear piercings
- Providing unique selling technique to reach customers
Most pizza stores have sit-down service, delivery, or both. Papa Murphy’s, in comparison, offers pizzas that consumers prepare at home. Since these cheap pizzas are made at home rather than in the store, clients who may not otherwise be able to purchase a prepared pizza might be drawn to Papa Murphy’s.
What are the advantages of a Focused Cost Leadership Strategy?
Focused cost leadership can help protect your company against Porter’s five forces in the same way that standard cost leadership can.
What are the risks of a Focused Cost Leadership Strategy?
- Other businesses could exploit your niche with more substantial economies of scale in the broad market.
- Your rivals could divide up your niche into smaller market segments.
What are the Case Studies of Focused Cost Leadership?
Checkers is a fast-food company headquartered in the US which operates only on a drive-in base. Compared to its rivals, it saves a lot of money because it does not provide seats to consumers, and its facilities are inexpensive to build. That is why those who want reasonably priced food often frequent Checkers. However, despite this, since it has smaller overheads, Checkers can also reach high-margins.
3. Differentiation Strategy.
What is Differentiation Strategy?
Although many firms rely on cost leadership as a strategy for economic advantage, the main target of some is to attract customers with something special that separates them from the rest. Of course, this strategy is not necessarily easy to take regarding the simplicity of implementing, mainly when we are talking about today’s competitive environment.
70% of U.S. customers say they would be more likely to invest more money with a business that offers outstanding service, according to the American Express 2017 customer service Barometer survey.
A differentiation strategy is an approach that marketers build by selling something different, differentiated, and separate to consumers from goods that their rivals can sell in the marketplace. The main goal of introducing a differentiation strategy is to enhance competitiveness.
Typically, an organization can carry out this strategy by evaluating its strengths and disadvantages, its clients’ desires, and the potential benefit they can provide.
- Decide what you would like to be remembered for You must have an understanding of your expert knowledge in your industry. You will need to decide what is significant to you, as well as and the fields in which your organization are focusing on. In this way, you will be able to provide your clients with a narrow differentiator.
- Study your target consumer
Research will the company’s services of your company with existing and future clients’ expectations and preferences. By studying you target consumers, you would also spread out your differentiators to make your expert knowledge more compelling. To this end, you might plan to send a questionnaire to those who buy your goods or use your services to collect data to get an accurate understanding of what they are looking for. - Create differentiators In order to discover elements that made your brand or goods unique, this phase is of great essence. Some typical differentiators are price, picture or credibility, partnership, operation, commodity, distribution,
- Share the story When you share the specific story of your business, it will be conducive to your differentiation plan immediately because your rivals obviously will not have a story like yours.
You may want to review your mission, vision, and values, and then build an overarching narrative on what places you apart that turns your potential audience into consumers.
It will also be of great help if you share your story to your target audience with a bio segment on your business page. Social media platforms are also very beneficial when you share goods and services with them on a more intimate basis.
- Build an image of a brand If possible, you may want to be innovative and rebrand to capture new clients and customers beyond the target demographic.
What are the advantages of a Differentiation Strategy?
Differentiation will help protect the company against the five forces of Porter:
- Competition: Brand loyalty and individuality will keep your market share from being seized by rivals. For example, by changing the flavor or using healthy ingredients, a candy manufacturer may distinguish their candies. While its competitors have cheaper sweets, they can’t supply the particular sweets business with the customers’ flavor.
- Suppliers: A higher price means that you can help handle changes in prices.
- Buyers: Since they can’t find what you sell elsewhere, strong buyers have limited scope to demand price declines. Your business can build a list of features that your rivals lack in their products. Those features can distinguish your goods from these of your competitors, and you will express this through efficient promotion and advertisement.
- New entrants: brand recognition and distinction discourage customers from switching to new entrants.
- Substitutes: Brand loyalty and individuality make it difficult for users to turn to substitutes. A strategy that differentiates effectively could introduce the notion that there is no other product available on the market to replace it with. A business may gain an edge in the industry even when there are homogeneous products available because customers will not be ready to replace your brand with another one. Companies are seeking to distinguish themselves by selling innovative goods to customers that are often revolutionized.
What are the risks of a Differentiation Strategy?
- Your customers might determine that your distinctiveness isn’t good enough to justify your high price.
- Any of your unique features may be imitated by rivals, weakening some of your individuality. As a result, organizations seeking a differentiation strategy should closely examine what your customer prefers and stay flexible in their product development. If they fail to do so, another product in the market will quickly become the stand-out offering.
What are the Case Studies of Differentiation Strategy?
Apple is one of the names that will most frequently spring up when we speak about differentiation. In reality, now it is considered among the top Tech companies, also known as the Big Five – among Amazon, Google, Facebook, and Microsoft.
Apple has been acclaimed for its revolutionary products, including its ecosystem line computers, the iPod, iPad, and of course the iPhone, and it has successfully distinguished them from their competing companies through a multi-approached strategy:
- Design: Their products not only exhibit a different graphic design that is aesthetically appealing but is also well thought out to ease the use of each unit. Consumers greatly appreciate this beauty and convenience. And they are more than willing to pay a premium price for it.
- OS: Apple also wanted to distinguish their products with an operating system that significantly improved user experience, breaching the gaps that were unsolved by its competitors
- Pricing strategy: The costs for most of their items are considerably higher than those of rivals.
4. Focused Differentiation Strategy.
What is a Focused Differentiation Strategy?
This strategy is very similar to the broad differentiation strategy, except that it relies on a tiny consumer niche. The companies that adopted this strategy compete with their competitors by delivering exclusive features to a small business niche.
Popular concentration mechanisms include:
- Find a narrow subset of the industry that is lucrative.
- Rely on regions where there is the weakest rivalry.
- Emphasis on a market where it’s impossible to replace your items.
What are the advantages of a focused differentiation strategy?
Businesses employing a focused differentiation strategy will protect themselves against Porter’s 5 Forces in the same manner as firms using a large differentiation strategy.
Besides, some benefits only accrue to those who follow a focused differentiation strategy
First, it is easy to charge really high rates. Indeed, businesses following differentiation strategy often sell their goods well above what companies charge.
A second benefit of implementing a focused strategy is that businesses also gain considerable insights into the products and services they deliver. Consumers not only opt for the product itself, but are happy to pay a higher price for very experienced sales employees to advise them about whatever specialized product better matches their needs, such as higher-end smartphones.
What are the risks of a focused differentiation strategy?
- The demand available within a market segment is sparse.
- Second, an organization could find its hopes for growth impeded. Expanding to other countries can be the best way to reach until the target market is well established, although this also involves learning a different range of skills.
- Your specialized niche may also vanish or be taken over by larger-scale rivals.
- Finally, malicious attacks can come not only from larger corporations, but also from smaller ones that concentrate much more narrowly.
For example, a sporting goods store that sells camping, climbing, canoeing, and hiking items could lose sales to a store that focuses only on hiking clothing because the latter would offer more advice on how skiers would remain warm and prevent broken bones.
What are the Case Studies of a Focused Differentiation Strategy?
- Breezes Resorts, a business that accommodates to couples without kids, is one example. The company runs seven tropical resorts where vacationers are ensured that loud and noisy kids will not bother them.
- Another example of an organization employing a centered differentiation approach is Rolls Royce vehicles. Their cars are associated with innovation, prestige, efficiency, and technology. They are priced at higher rates and focused on a limited segment of the global vehicle industry.
5. Integrated Cost Leadership/Differentiation.
What is Integrated Cost Leadership/Differentiation?
Integrated cost leadership/differentiation is a business-level strategy where particular products are available in the market at a low price. This type of strategy is often called a hybrid strategy.
To understand the concept of a hybrid strategy, imagine a mid-ranged product that differentiates itself in some way can be more attractive to the mass public than a cheap ordinary product.
What are the advantages of Integrated Cost Leadership/Differentiation?
As global competitiveness rises than ever before, this new hybrid approach will become much more relevant — and more common.
Businesses that integrated strategies will strengthen their ability to respond rapidly to market developments and acquire new skills and technology, relatively more efficient than businesses that focus on a single marketing strategy.
This would utilize key capabilities across corporate divisions and product categories more efficiently and help make goods with distinctive attributes or qualities desired by consumers and deliver these differentiated products at a reduced cost relative to products from rivals.
These amazing benefits are attributed to the various combined edges of simultaneously implementing cost leadership and differentiation methods efficiently. Differentiation helps the business to charge higher rates, and Cost Leadership allows the business to set the lowest reasonable price. Thus, by offering value to consumers based on both product characteristics and low price, the company is able to gain a competitive edge.
To sum up, the Integrated Cost Leadership/Differentiation Strategy can help your business to
- Adapt more quickly
- Learn new skills and technologies
- Utilize Flexible Manufacturer Systems to create differentiated products at low costs
- Leverage core competencies through Information Networks across multiple business units
- Utilize Total Quality Management (TQM) to create high quality differentiated products that simultaneously driving down costs
What are the risks of Integrated Cost Leadership/Differentiation?
Integrated strategies pose threats that go beyond those resulting from the pursuit of only one strategy. Among these threats, the most dangerous one is that a company is ‘stuck in the middle.’ In such a scenario, an organization struggles to implement either the differentiation or the cost leadership approach successfully.
Being “stuck in the middle” means that the enterprise will not be able to navigate the Potters’ five external forces efficiently and will not achieve strategic competitiveness. In reality, these firms can only make average profits if the structure of the market is beneficial or if other firms in the market are “stuck in the middle” as well.
What are Case Studies of an Integrated Cost Leadership/Differentiation?
IKEA is a perfect example of an organization with a strategy of balanced cost leadership and differentiation. It offers outstanding services you cannot find anywhere. To attain this, the company invests in its own designers. It offers its goods at a low price as well. To achieve this, the company invests in automation and distribution.
Southwest Airlines is a less clear example of a company employing an advanced cost leadership and differentiation strategy.
Cost leadership is provided by Southwest Airlines through:
- Using with a single aircraft type only (Boeing 737).
- Using fewer, cheaper airports.
- Not serving meals
- Having a short turnaround period of 25 minutes.
What are the differences between a business-level strategy vs. a corporate-level strategy?
What is a corporate-level strategy?
When a company sees opportunities beyond its initial business sector, it might begin to consider a corporate-level strategy.
When other firms become part of the business, the leader of the small business must take into account the corporate-level strategy
The offshore company must play a part in the productivity, sustainability, and value proposition of each business unit in order to be efficient as a whole. For instance, the gourmet candy maker may decide to join the dried-fruit market.
Only when the parent corporation can expand and grow a comparative edge over all firms, such as economies of scale, centralized management, or supply chain, this corporate decision proved successful.
For example, the owner can conclude that her mail-order candy delivery scheme is ideally suited for the dried-fruit company. The consumer analysis shows that both businesses aim at the same demographic segmentation. It is when the corporate-level strategy kicks in.
Organizational and management plans have to work together and affect each other in an attempt to make the company subsidiaries and the company productive. Small companies considering diversification and planning to expand have to face several additional organizational management choices and a business-level strategy for the new business unit.
Let’s go back to our start-up candy manufacturer; his strategic decision was to penetrate the bakery market. He focuses his business plan on how to survive the competitiveness, which in turn affected his organizational strategy concerning aspects such as the company’s functions, departments, operations,
The inclusion of another unit requires business-level decisions for the new unit as it expands. But it could also entail a reconsideration of the previous candy making manufacturer’s business strategy.
Differences between business-level strategy vs. corporate-level strategy?
You can say that Corporate-Level Strategies as taking place at a larger scale than Business-Level Strategies.
Business-Level Strategies take into account how an organization should stay competitive, whereas Corporate-Level Strategies question what businesses an organization should compete with.
Another way of explaining this is that strategy at the company level looks at how to succeed inside a market. Strategy at the organizational level will look at what markets you can be in.
You may be in the protein area, for instance. Your strategies at the corporate level will decide what areas you will participate in within the protein industry, such as cod liver oil, muscle strength, etc. Your business-level strategy will ascertain how you plan on winning in each of these industries.
Let’s narrow it down.
- Corporate-Strategy Level:
- What business or businesses should we be in?
- How does the parent company add value to the subsidiaries?
- How does being in one business help us compete in our other companies?
- Business-Strategy:
- How should we compete?
The importance of business-level strategy: Why does your business need one?
What is the mission of every company: it is to expand and meet the best possible clients with its product or service? It is also to create a set of committed clients whose interests are fulfilled or aspirations are surpassed by the company’s services. The purpose of companies is precisely the same. That is also why a strategy at the company level is of considerable significance. A Business-Level Strategy will:
- Allow actual problems to be discovered: The real problems that occur on the surface are the ones we need to be conscious of. They expect us to respond quickly and generally have a dominant influence over consumers or even procedures. An overarching plan at the corporate level does not really indicate what those obstacles may be. A business-level strategy is what will allow us to anticipate or estimate those.
- Provide authority over the costs – The costs that are commonly manageable for a business executive are usually the ones that take place at the business level. Key facets of the overall company strategy are their visibility on what these costs are, how to manage them, which sorts of systems need to be standardized to control the costs. The corporate strategy level will offer an interpretation of what degree of cost optimization is required. However, in order to fully control the charges, a business-level plan is a must.
- Help battle the creativity war – In the case of diverse organizations, the businesses and the skills needed vary significantly. However, in the case of a company that operates on a single field, based on its industry, the various business divisions require a different approach to each staff’s expertise: business-level solution. Making sure that each and every talent is taken into account is what the business-level solution will do.
- Help in monitoring suppliers, vendors, and other outer stakeholders – The traditional way of managing the suppliers, vendors, and exterior stakeholders of the business is a time-intensive one. It takes a great deal of conversation and thinking to come up with a solution to engage them. For example, regarding vendors, your business needs to make sure that they price things and manage reliability appropriately, etc. There are a lot more aspects that only by a business-level approach can be supervised and handled well.
Summary
Business-Level Strategy theory revolves around three strategies you as an organization can employ to come out on top in the marketplace: Cost Leadership, Focused, or Differentiation.
The one you choose depends on the requirements of the business and your particular set of core skills.
- Cost leadership seeks to boost market share by concentrating on low-cost development.
- Focused seeks to conquer a small market segment by solely concentrating on satisfying that segment (you can always add new market segments afterward).
- Differentiation helps to increase market share by focusing on making the goods or services distinctive and identifiable.
- Finally, Integrated Cost Leadership/Differentiation allows you to offer distinguishable items but at a reasonable price.
