BUSINESS LEVEL STRATEGY

• Dr. Ashesh Anand

• Department of management
• Vinoba Bhave University
BUSINESS LEVEL STRATEGY
Business Level
strategy

Michel Porters Best cost Provider

competitive Analysis strategy

Cost Leadership

Differentiation
Strategy

Focus Strategy
 WHY BUSINESS LEVEL STRATEGY…?
An organization’s core competencies should be focused on satisfying customer needs or
wants in order to achieve organizational objectives.

This is achieved through businesses level strategies.

Business level strategies are the course of action adopted by an organization, for each of its
businesses separately, to serve identified customer groups and provide value to those
customers by satisfying their needs.

In the process, the organization uses its competencies to gain, sustain and enhance its
strategic and competitive advantage
 EXTERNAL ENVIROMENTAL FACOTRS

 Opportunities

 Threats

 Industry Competition

 Competitor Analysis
 Reason for SWOT Analysis

• It is an easy-to-use tool for developing an overview of a company’s strategic

situation

• It forms a basis for matching your company’s strategy to its situation

• It provides an overview of the strategic situation.

• It provides the “raw material” to do more extensive internal and external

analysis.
 WEAKNESS

These weaknesses are company characteristics that place a company at a disadvantage relative to
others. In other words: they are harmful to a company.
Weaknesses could for example be a lack of patent protection, poor reputation among customers, a
small working capital, bad leadership and an inefficient production process.
Weaknesses are best discovered by having enough feedback loops in place, both internally and
externally. Think about sending out customer surveys and organizing monthly employee gatherings.
 STRENGTH

company’s strengths are its characteristics that give it an advantage over

others (competitors).
Sometimes these strengths are also referred to as unique selling points
(USPs), firm-specific advantages (FSAs) or competitive advantage.
The source of these strengths are resources and capabilities that are
valuable, rare, hard-to-imitate and organization-wide supported.
Examples of valuable company resources are patents, a strong brand
reputation, a new innovative product, a talented workforce, historically
developed know-how and large financial reserves
 • An OPPORTUNITY is a chance for firm
growth or progress due to a favorable
juncture of circumstances in the business
environment.

• Possible Opportunities:
Emerging customer needs
Quality Improvements
Expanding global markets
Vertical Integration
This Photo by Unknown Author is licensed under CC BY-SA
• A THREAT is a factor in your company’s
external environment that poses a
danger to its well-being.

Possible Threats

New entry by competitors

Changing demographics/shifting
demand
Emergence of cheaper
technologies
Regulatory requirements
 Opportunities and Threats
form a basis for EXTERNAL analysis

• By examining opportunities, you can discover untapped markets, and new

products or technologies, or identify potential avenues for diversification.
• By examining threats, you can identify unfavorable market shifts or changes
in technology, and create a defensive posture aimed at preserving your
competitive position.
Components of the General Environment
Economic

Demographic
Sociocultural

Industry Environment

Competitive
Environment

Political/Leg
al Global

Technological
 The purpose of
Five-Forces Analysis

• The five forces are environmental forces that impact on a

company’s ability to compete in a given market.

• The purpose of five-forces analysis is to diagnose the principal

competitive pressures in a market and assess how strong and

important each one is.

 Porter’s Five Forces
Model of Competition
Threat of
Threat
New of New
Entrants
Entrants
 Threat of New Entrants
Economies of Scale

Barriers to Product Differentiation

Entry
Capital Requirements

Switching Costs

Access to Distribution Channels

Cost Disadvantages Independent of Scale

Government Policy

Expected Retaliation
 Porter’s Five Forces
Model of Competition
Threat of
Threat
New of New
Entrants
Entrants

Bargaining
Power of
Suppliers
 Bargaining Power of Suppliers
Suppliers are likely to be powerful if:

Supplier industry is dominated by a few firms

Suppliers exert power in
the industry by:
Suppliers’ products have few substitutes
* Threatening to raise prices or
to reduce quality Buyer is not an important customer to supplier

Powerful suppliers can

squeeze industry Suppliers’ product is an important input to buyers’ product
profitability if firms are
unable to recover cost
Suppliers’ products are differentiated
increases
Suppliers’ products have high switching costs

Supplier poses credible threat of forward integration

 Porter’s Five Forces
Model of Competition
Threat of
Threat
New of New
Entrants
Entrants

Bargaining Bargaining
Power of Power of Buyers
Suppliers
 Bargaining Power of Buyers
Buyer groups are likely to be powerful if:

Buyers are concentrated or purchases are large relative to seller’s

sales
Buyers compete with the
supplying industry by:
Purchase accounts for a significant fraction of supplier’s sales

Products are undifferentiated

* Bargaining down prices
Buyers face few switching costs * Forcing higher quality
Buyers’ industry earns low profits * Playing firms off of
each
Buyer presents a credible threat of backward integration other

Product unimportant to quality

Buyer has full information

 Porter’s Five Forces
Model of Competition
Threat of
Threat
New of New
Entrants
Entrants

Bargaining Bargaining
Power of Power of Buyers
Suppliers

Threat of
Substitute
Products
 Threat of Substitute Products
Keys to evaluate substitute products:

Products with improving price/performance

Products with tradeoffs relative to present industry
similar function products
limit the prices
firms can charge

Example:

Electronic security systems in place of

security guards

Fax machines in place of overnight mail

delivery
 Porter’s Five Forces
Model of Competition
Threat of
Threat
New of New
Entrants
Entrants

Bargaining Rivalry Among Competing Bargaining

Power of Firms in Industry Power of Buyers
Suppliers

Threat of
Substitute
Products
 Rivalry Among Existing Competitors
Intense rivalry often plays out in the following ways:
Jockeying for strategic position

Using price competition

Staging advertising battles

Increasing consumer warranties or service

Making new product introductions

Occurs when a firm is pressured or sees an opportunity

Price competition often leaves the entire industry worse off

Advertising battles may increase total industry demand, but may be costly to smaller
competitors
Rivalry Among Existing Competitors
Cutthroat competition is more likely to occur when:
Numerous or equally balanced competitors
Slow growth industry
High fixed costs
High storage costs
Lack of differentiation or switching costs
Capacity added in large increments
Diverse competitors
High strategic stakes
High exit barriers
 The Five Forces are Unique to every Industry

Five-Forces Analysis is a framework for analyzing a

particular industry. Yet, the five forces affect all the
other businesses in that industry.
 Competitor Analysis
The follow-up to Industry Analysis is
effective analysis of a firm’s Competitors

Industry Environment

Competitive
Environment
 Competitor Analysis
Assumptions
What assumptions do our competitors hold
about the future of industry and
themselves? Response
What will our competitors do
in the future?
Current Strategy
Does our current strategy support changes
in the competitive environment?
Where do we have a
competitive advantage?

Future Objectives
How do our goals compare to our How will this change our
competitors’ goals? relationship with our
competition?

Capabilities
How do our capabilities compare to our
competitors?
 Competitor Analysis
Future Objectives What Drives the competitor?
How do our goals compare
to our competitors’ goals?
Where will emphasis be
placed in the future?
What is the attitude
toward risk?
 Competitor Analysis
Future Objectives What is the competitor doing?
How do our goals compare What can the competitor do?
to our competitors’ goals?
Current
Where will emphasis Strategy
be
placed inHow
the future?
are we currently
What is the attitude
competing?
toward risk?
Does this strategy support
changes in the
competitive structure?
 Competitor Analysis
Future Objectives What does the competitor believe about itself
and the industry?
How do our goals compare
to our competitors’ goals?
Current
Where will emphasisStrategy
be
placed in the future?
How are we currently
What is the attitude
competing?
toward risk? Assumptions
Does thisDo strategy support
we assume the future
changes in willthe
be volatile?
competitionWhat structure?
assumptions do our
competitors hold about the
industry and themselves?
Are we assuming stable
competitive conditions?
 Competitor Analysis
Future Objectives What are the competitor’s
capabilities?
How do our goals compare
to our competitors’ goals?
Current
Where will emphasisStrategy
be
placed in the future?
How are we currently
What is the attitude
competing?
toward risk? Assumptions
Does thisDostrategy support
we assume the future
changeswill
in the
be volatile?
competition
Whatstructure?
assumptions do our
competitors Capabilities
hold about the
industry and themselves?
What are my competitors’
Are we operating under a
strengths and weaknesses?
status quo?
How do our capabilities
compare to our
competitors?
 Competitor Analysis
Future Objectives Response
How do our goals compare What will our competitors
to our competitors’ goals? do in the future?
Current
Where will emphasisStrategy
be Where do we have a
placed in the future? competitive advantage?
How are we currently
What is the attitude
competing? How will this change our
toward risk? Assumptions relationship with our
Does thisDostrategy support
we assume the future competition?
changeswill
in the
be volatile?
competition
Whatstructure?
assumptions do our
competitors Capabilities
hold about the
industry and themselves?
What are my competitors’
Are we operating
strengthsunder a
and weaknesses?
status quo?
How do our capabilities
compare to our
competitors?
 This Photo by
Unknown Author is
licensed under CC BY-
This Photo by Unknown
SA Author is licensed under
CC BY-SA
Generic strategy
Strategies allow organizations
to gain competitive advantage
from three different bases:
cost leadership,
differentiation, and focus.
Porter called these base
generic strategies. These
strategies have been termed
generic, because they can be
pursued by any type or size of
business firm and even by
not-for-profit organizations.
 COST LEADERSHIP
Cost leadership is a strategy companies use to increase
efficiencies and reduce production costs below the industry
average or their closest competitor.
STRATEGY TO ACHIEVE COST LEADERSHIP
 Economy of scale DISADVANTAGES OF COST LEADERSHIP
 Size advantages
 Technology  Financial Cuts
 Raw material
 Product Innovation

 Customer Feedback

ADVANTAGES OF COST LEADERSHIP  Substandard Quality

 Better Profitability  Not For Every Product

 Market share improvement
 Capital Availability
 Business Sustainability
 More Capital  Copycats
 Reduction in competition
 Differentiation Strategy
Differentiation strategy is concerned with product
differentiation. It refers to making a company’s product
different from the similar products of the competitors.

According to Philip Kotler, differentiation is the act of

designing a set of meaningful differences to distinguish
the company’s offerings (i.e., products) from
competitors’ offerings.

A differentiated product is unique by itself. A product

can be differentiated based on its form, shape, quality,
durability, reliability, repairability, style, design, or some
other features of the product.

A product will become differentiated from that of the

competitors if its form (size, shape, or physical
structure) is changed.
 How Organizations Can Achieve Product Differentiation
Hill and Jones suggested several ways to achieve differentiation in a company’s products.
Differences in quality.

1.Innovation.
2.Responsiveness to customers.
3.Responding to customers’ psychological
desires.
4.Wide choice of customers.
5.Reliability of products.
6.Availability of spare
FOCUS STRATEGY
The idea behind focus strategy is developing, marketing and selling products or services
to a niche market, such as a particular type of consumer, a specific product line or a
targeted geographical area.
The goal of the focus strategy is to become the leader in the determined niche by serving
the designated group better than anyone else out there. Your objective in focus strategy is
to be the go-to brand or product for the group you're trying to reach.
Focus strategy works well for businesses in a number of ways. First, because organization
focusing their products and marketing on a very specific audience, you get to know them
in a way that makes you better able to understand their needs. Understanding your niche
group's needs means you're better
 Strategy
For this segment the focus is to
provide the best product at a Low Cost Strategy
better cost, the value for the
money is the focus by
incorporating good to excellent
product attributes at a lower Advantages of building Low cost
cost than rivals. The focus is to
have the lowest costs and
prices when compared to
competitors’ attributes they
offer.
 Low cost strategy
This is based on the ability of the organization which can provide
a product or service at a lower cost than its competitors. The
assumption behind a low-cost strategy is that it acquires a
substantial cost advantage over rivals that can be passed on to
the customers to gain a larger profit or market share. Low-cost
strategy can produce an advantage where a firm can earn a
higher profit margin by selling products at the same market price
as rivals. These products are aimed to be sold at a lower cost
and the appeal to an average customer in a broad target market.
Sometimes these products have high standards and not
customized to individual customer’s tastes, needs or desires. So,
for a low-cost leadership strategy is followed by modifying
products as possible, the firm can provide benefits from
economies of scale and experience effects. Low-cost leadership
strategies can also be applied in services-based business for
 Advantages of building Low cost
The presence of a strong market can allow the firm
to able to convince the rivals not to start price wars
within the industry, this means the low-cost firms
can set the stage for pricing discipline within the
market. It is easy for low-cost firms to keep
competition out of the industry through their price-
cutting power, this can be a substantial obstacle to
firms contemplating entry into the industry.
This Photo by