Business-level Strategy

Presented by Manisha Singh Mahesh Patwardhan Pooja Chavan Hemant Lanjekar

Points to be Discussed
Customers relationship with Business Level Strategy Reach, Richness and Affiliation Who, What and How The purpose of Business Level Strategy Types of Business Level Strategy
1) Cost Leadership

2) Differentiation 3) Focused 4) Integrated cost Leadership/Differentiation

Five Forces of Competition

Business-level strategy

Definitions Strategy
A strategy is an integrated and coordinated set of commitments and actions designed to exploit core competencies and gain a competitive advantage A business-level strategy is an integrated and coordinated set of commitments and actions designed to provide value to customers and to gain a competitive advantage by exploiting core competencies in specific, individual product markets

Business-level strategy

Customers relationship with Business level Strategy

Superior Value of Product Interactive Relationships Customer Loyalty Profitability Of Firm

Reach Firms access and connection to customers Ex:-HUL

Richness Depth and detail of two-way flow of information between the firm and the customer Ex:-Dell

Affiliation Facilitation of useful interactions with customers. Ex:- CRM of Hotel Industry

Effective management of customer relationship helps to answer the questions below

Who What How

Who: Determining the Customers to Serve

Market segmentation

Market segmentation is used to cluster people with similar needs into individual and identifiable groups

Basis for Customer Segmentation

Consumer markets 1 Demographic factors (age, income, sex, etc.) 2 Socio-economic factors (social class, stage in the family life cycle) 3 Geographic factors (cultural, regional, and national differences) 4 Psychological factors (lifestyle, personality traits) 5 Consumption patterns (heavy, moderate, and light users) 6 Perceptual factors (benefit segmentation, perceptual mapping)

Basis for Customer Segmentation (Contd..) Industrial markets 1 2 End-use segments(Identified by SIC Code) Product segments (based on technological differences or production economics)

3
4 5

Geographic segments (defined by boundaries between countries or by regional differences within them)
Common buying factor segments (cut across product market and geographic segments) Customer size segments

Needs (features and benefits of product)

Value
Low cost with acceptable features

Interactions with customers

Current needs and future needs

Highly differentiated features with acceptable cost

How: Determining Core Competencies Necessary to Satisfy Customer Needs

Core Competencies

Value creating Strategies

Satisfy customer needs

The Purpose of Business Level Strategy

To position itself differently from competitors Firm must decide whether it intends to Perform activities differently

Or to perform different activities

How to integrate the activities it performs in ways

Superior value for customers

Competitive advantage

Successful Business level strategy

Cost Leadership Strategy

Goods and Services with acceptable features at low cost Sell Standardized goods or services Concentration should not only on reducing cost

Broad customer segment

Competitive advantage in terms of inbound and outbound

logistics create more value To reduce cost some firms outsource the operations E.g. Nokia mobile in terms of manufacturing battery from China, body in Taiwan, etc

Rivalry with Existing Competitors

Rivals hesitate to compete on the basis of price with cost leader because of his advantageous position Before competing on basis of low cost the competitor has to evaluate potential outcomes E.g. Samsung v/s Micromax

Bargaining power of buyers(Customers)

Bargaining Power of Suppliers

Powerful customers can force leader to reduce its prices to a level If customers force the firm to lower the price below the level that will lead competitor to exit market The firm will remain in market without rivals Customers would have to pay then higher prices from a single firm

low cost position enables firm to absorb suppliers increase in price A powerful cost leader will be able to force suppliers to hold down their prices Being able to make very large purchases, reducing chance of suppliers using power

Potential Entrants

Cost Leader increases its efficiency to reduce the cost to level lower than competitors It leads firm to earn higher profit margins New entrants require competencies to earn above average returns

Product Substitutes

The firm may face threat from product substitutes when its features are potentially attractive to firms customer To retain the customers firm can reduce price

Competitive Risks of Cost Leadership Strategy

Process used by cost leader may become obsolete due to competitors

innovation
Competitors will produce at low cost than firm Too much focus on cost reduction Ignoring customers perception

Imitation by Competitors
To Overcome imitation firm must increase value or add differentiated features

that customers value

Differentiation Strategy
It is integrated set of actions taken to produce goods and services(at an

acceptable cost) that customers perceive as being different in ways that are important to them
Price for the product = Price Customers are willing to pay

Non standardized products

Consistent up gradation of differentiated features Satisfy unique needs of customers and firm charges premium price Price of product > Cost to create differentiated features of product E.g. Blackberry, Dell, iphone

Differentiation Strategy
Rivalry with Existing Competitors Bargaining power of Buyers
Bargaining power of suppliers Potential Entrants Product Substitutes
Customer loyalty exists when loyalty increases price sensitivity of customers decreases (insulator against competitors)

Reduces customers sensitivity to price increase Customers accept price increase in product till Product should satisfies unique nee

As firm charges high price to customers, suppliers must provide high quality components But high margins enables firm insulation against this high cost of suppliers Customers are insensitive to price increase So firm can pass the additional cost of supplies to customer

Customer loyalty and need to overcome uniqueness of differentiated product are barriers Needs significant investment of resources and patience

Strong positions of firms selling brand name products Those without brand loyalty may lose customers Customers may switch to competitors product

Competitive Risks of Differentiation Strategy

Customers might decide that difference between cost leaders and

differentiators product is too large

Firms means of differentiation may cease to provide value for which customers

are willing to pay

Experience can narrow customers perceptions of the value of a products

differentiated features
Counterfeiting (differentiated features at a reduced price)

Focused Strategies
It is integrated set of actions taken to produce goods or services

Serve the needs of a particular competitive segment

To implement a focus strategy, the firm must be able to complete various primary and support value chain activities in a competitively superior manner, in order to develop and sustain a competitive advantage and earn above-average returns Its unique needs are very specialized Industry wide competitors does not serve or poorly serve those needs

Competitive Risks of Focused Strategy

A competitor may out focus the focuser A company competing on industry wide basis may

attract towards narrow segment The needs of customers of narrow segment may become more similar to industry wide customers

Integrated cost leadership/ differentiation strategy

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A firm that successfully uses the 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 A commitment to strategic flexibility is necessary for successful use of this strategy Three sources of flexibility are: flexible manufacturing systems, information systems networks, total quality management systems

Sources of strategic flexibility

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Flexible manufacturing systems (FMS) Computer controlled processes used to produce a variety of products in moderate, flexible quantities with a minimum of manual intervention

Goal is to eliminate the low-cost-versus-wide-productvariety trade-off Allows firms to produce a large variety of products at relatively low costs

Sources of strategic flexibility (contd)

21

Information networks Link companies electronically with their suppliers, distributors and customers

Facilitate efforts to satisfy customer expectations in terms of product quality and delivery speed Better understanding of customer needs using customer relationship management (CRM) systems Improve flow of work among employees in the firm and their counterparts at suppliers and distributors Company-wide efficiency improvements using enterprise resource planning (ERP) systems

Sources of strategic flexibility (contd)

22

Total quality management (TQM) systems

Increase Customer Satisfaction Cut Costs Reduce amount of time required to introduce innovative products to the market place

Competitive risks of the integrated cost leadership/differentiation 23 strategy

Often involves compromises Becoming neither the lowest cost nor the most differentiated firm Becoming stuck in the middle Lacking the strong commitment and expertise that accompanies firms following either a cost leadership or a differentiated strategy Earning below-average returns Competing at a disadvantage Even so, the integrated strategy is an appropriate choice for firms possessing the core competencies to produce somewhat differentiated products at relatively low prices

Thank You