Business Level Strategy

• is an integrated and coordinated set of

commitments and actions the firm uses to gain
a competitive advantage by exploiting core
competencies in specific product market.
• Key issues in business level strategy:
1. what good or service to offer customers.
2. how to manufacture or create it.
3. how to distribute it to marketplace.
• The essence is choosing to perform activities
differently or perform different activities than
rivals.
 Customers: who, what, and how
• Customers are the foundation of successful
business-level strategy.
• an effective business-level strategy demonstrates
the firm ability to “build and maintain
relationships to the best people for maximum
value creation, both internally (to firm
members) and externally (to customers)”
1.who will be served,
2.what needs those target customers have that it
will satisfy,
3.how those needs will be satisfied.
Dimensions of Relationships with Customers
• Reach dimension
▫ reach dimension with customers is concerned with
the firm’s access and connection to customers.
▫ in general, firms seek to extend their reach, adding
customers in the process of doing so.
• Richness dimension
▫ is concerned with the depth and detail of the two-way
flow of information between the firm and the
customer.
• Affiliation dimension
▫ is concerned with facilitating useful interactions with
customers.
Who: Determining the customers to serve
• A crucial business level strategy decision is the
one made about the target customers for the
firm’s goods or services (who).
• Market segmentation,
▫ is a process used to cluster people with similar
needs into individual and identifiable groups.
 Basis for customer segmentation
• Consumer Markets
1. Demographic factors (age, income, sex),
2. Socioeconomic factors (social class),
3. Geographic factors (cultural, regional, national
differences),
4. Psychological factors (life style, personality traits),
5. Consumption patterns (heavy, moderate, light users)
6. Perceptual factors (benefit segmentation, perceptual
mapping).
 Basis for customer segmentation (cont.)
• What: Determining which Customer Needs to Satisfy.
▫ needs (what) are related to product’s benefits and features.
▫ to ensure success, a firm must be able to fully understand
the needs of the customers in the target group it has
selected to serve.
• How: Determining Core Competencies Necessary to
Satisfy Customer Needs.
▫ Core competencies are resources and capabilities that serve
as a source of competitive advantage for the firm over the
rivals.
▫ Firms use core competencies (how) to implement value-
creating strategies and thereby satisfy customer’s needs.
▫ Continuously improve, innovate, and upgrade
competencies are must to exceed customers’ expectations.
 Types of Business-Level Strategy
• Cost Leadership Strategy
• Differentiation Strategy
• Focus Strategy
• Integrated Cost Leadership/Differentiation
Strategy.

Perform activities differently

or
Perform different activities.
 Cost Leadership Strategy
• Cost leadership strategy,
▫ is an integrated set of actions taken to produce goods
or service with features that are acceptable to
customers at the lowest cost, relative to that of
competitors.
• Cost leaders’ goods and services must have competitive
levels of differentiation in terms of features that create
value for customers.
• Emphasizing cost reductions while ignoring competitive
differentiation is ineffective.
• Main cost leadership strategy: designing, producing,
and marketing a comparable product more efficiently
than rivals.
 Risks of The Cost Leadership Strategy
1. The processes used to produce and distribute
its good or service could become obsolete
because of competitors’ innovations.
2. Too much focus by the cost leader on cost
reductions may occur at expense of trying to
understand customers’ perceptions of
“competitive levels of differentiation.”
3. Imitation. Using their own core competencies,
competitors sometimes learn how to
successfully imitate the cost leader’s strategy.
 Differentiation Strategy
• is an integrated set of actions taken to produce
goods or service (at an acceptable cost) that
customers perceive as being different in ways
that are important to them.
• Target customers: who perceive that value is
added by the manner in which the firm’s
products differ from those produced and
marketed by competitors.
• Therefore, the firm produces non-standardized
products for customers who value differentiated
features more than they value low cost.
 Differentiation Strategy (cont.)
• The main strategy:
1. A thorough understanding of what targeted
customers value.
2. Understanding the relative importance the
customers attach to the satisfaction of different
needs.
3. Understanding for what the customers are
willing to pay a premium.
 Differentiation Strategy (cont.)
• Risks:
1. The customers might decide that the price
differential between the differentiator’s product and
the cost leader’s product is too large.
2. A firm’s means of differentiation may cease to
provide value for which customers are willing to pay.
 a differentiated product becomes less valuable if
imitation by rivals causes customers to perceive
that competitors offer essentially the same good or
service, but at the lower price.
3. Experience can narrow customers’ perceptions of the
value of a product’s differentiated features.
4. Counterfeiting products.
 Focus Strategy
• is an integrated set of actions taken to produce
goods or services that serve the needs of a
particular competitive segments.
• Specific segment of markets could be:
1. a particular buyer group (e.g., youths or senior
citizens)
2. a different segment of product line (e.g.,
products for professional painters)
3. a different geographic market.
• Focus strategy could be focused cost leadership
or focused differentiation strategy.
 Focus Strategy (cont.)
• Risks:
1. Competitor may be able to focus on a more
narrowly defined competitive segment and “out-
focus” the focuser.
2. A company competing on an industry-wide basis
may decide that the market segment served by
the focus strategy firm is attractive and worthy
of competitive pursuit.
3. The needs of customers within a narrow
competitive segment may become more similar
to those of industry-wide customers as a whole.
 Integrated Cost Leadership/Differentiation
Strategy
1. Adapt quickly to environmental changes,
2. Learn new skills and technologies more
quickly,
3. Effectively leverage its core competencies while
competing against rivals.
• The main strategy:
▫ Flexible manufacturing system
▫ Information networks
▫ Total quality management
• Flexible manufacturing system,
▫ is a computer controlled process used to produce a
variety of products in moderate, flexible quantities
with a minimum of manual intervention.
• Information networks,
▫ linking the companies with their suppliers,
distributors, and customers.
▫ effective information networks improve the flow of
work among the employees in the local firm as
well as between those employees and their
counterparts, such as suppliers and distributors,
with whom they interact.
 Total Quality Management
• Increase customer satisfaction through
continuous improvement and customer focus
strategy
• Problem solving based on empowerment of
employee groups and teams.
• Cut cost
• Reduce the amount of time required to
introduce innovative products to the
marketplace.