Business Level Strategies

Compiled by
Dr. M.Venkatesan
Core The resources and capabilities that have been
Competency determined to be a source of competitive
advantage for a firm over its rivals.

An integrated and coordinated set of

Strategy actions taken to exploit core competencies
and gain a competitive advantage.

Actions taken to provide value to

Business customers and gain a competitive
Level advantage by exploiting core
Strategy competencies in specific, individual
product markets.
Basis for Customer Segmentation
Consumer Markets
1. Demographic factors (age, income, sex, etc.)
2. Socioeconomic factors
(social class, stage in the family life cycle)
3. Geographic factors
(culture, region or country differences)
4. Psychological factors (lifestyle, personality traits)
5. Consumption patterns
(heavy, moderate, and light users)
6. Perceptual factors
(benefit segmentation, perceptual mapping)
7. Brand loyalty patterns
 Basis for Customer Segmentation
Industrial Markets
1. End use segments (identified by Standard Industrial Classification, SIC code)
2. Product segments (based on technological differences or production economics)
3. Geographic segments (defined by boundaries between countries or by regional
differences within them)
4. Common buying factor segments (cut across product/market and geographic
segments)
5. Customer size segments
 Generic Business Level Strategies
Source of Competitive Advantage

Cost Uniqueness

Broad Cost
Cost Differen-
Target
Market Leadership
Leadership tiation
Breadth of
Competitive Scope

Focused
Narrow Focused
Target Differen-
Market Low Cost
tiation
Cost Leadership Business Level Strategy

Key Criteria:

Relatively standardized products

Features acceptable to many customers

Lowest competitive price

Cost Leadership Business Level Strategy
Requirements:
Constant effort to reduce costs through:

Building efficient scale facilities

Tight control of production costs and overhead
Minimizing costs of sales, R&D and service
State of the art manufacturing facilities
Monitoring costs of activities provided by outsiders
Simplification of processes
 How to Obtain a Cost Advantage

1. Determine and Control Cost Drivers

2. Reconfigure the Value Chain as needed

Alter production process New raw material

Change in automation Forward integration
New distribution channel Backward integration
New advertising media Change location relative
Direct sales in place of to suppliers or buyers
indirect sales
 Choices That Drive Costs
Economies of scale Product features
Asset utilization Performance
Capacity utilization pattern Mix & variety of products
- Seasonal, cyclical Service levels
Interrelationships Small vs. large buyers
- Order processing
and distribution Process technology

Value chain linkages Wage levels

- Advertising & Sales Product features
- Logistics & Operations
Hiring, training, motivation
 Three Key Questions

1. How can an activity be performed differently or even

eliminated?

2. How can a group of linked value activities be regrouped

or reordered?

3. How might coalitions with other firms lower or eliminate

costs?

Gallo sold wine through grocery stores rather than liquor stores because
they were more efficient distributors
Effective Cost Leaders can remain profitable even
when the
Five Forces appear unattractive
Effective Cost Leaders can remain profitable even when
the Five Forces appear unattractive

Threat of
New
Entrants

Can frighten off New Entrants

due to the need to:

* Enter at large scale to

be Cost Competitive
* Take time to move down
the “Learning Curve”
Effective Cost Leaders can remain profitable even when
the Five Forces appear unattractive

Can frighten off New Entrants due

Threat of to the need to:
New * Enter at Large Scale to be
Cost Competitive
Entrants
* Take time to move down the
“Learning Curve”

Can mitigate Buyer Power by: Bargaining

Power of
* Driving prices far below competitors Buyers
may cause exit and shift power back
to firm
 Effective Cost Leaders can remain profitable even when
the Five Forces appear unattractive

Can frighten off New Entrants due

Well positioned relative to Threat New
of to the need to:
* Enter at Large Scale to be
Substitutes in order to: Entrants Cost Competitive
* Take time to move down the
* Make investments to create substitutes first “Learning Curve”

Buy patents developed by potential

* substitutes Bargaining
Power of
Lower prices to maintain value Buyers
* position
Can mitigate Buyer Power by:

Driving prices far below

Threat of competitors which may
cause exit and shift power
Substitute back to firm
Products
 Effective Cost Leaders can remain profitable even when
the Five Forces appear unattractive

Can frighten off New Entrants due

Threat of to the need to:
Bargaining New * Enter at Large Scale to be
Cost Competitive
Power of Entrants
* Take time to move down the
Suppliers “Learning Curve”

Can mitigate Supplier Power by: Bargaining

Power of
Buyers
* Low cost position makes them better
able torelative
Well positioned absorb
to cost increases Can mitigate Buyer Power by:
Substitutes in order to:
* More likely to make very
* Make investments to create substitutes large purchases
Threat of
Driving prices far below
competitors which may
* which
Can buy reduces
patents developed
potential substitutes
chance
by of supplier
Substitute power
cause exit and shift power
back to firm
* Lower prices to maintain Products
value position
 Effective Cost Leaders can remain profitable even when
Competitors avoid
the Five Forces appear unattractive
price wars with Cost
Can mitigate Supplier Power by: Leaders,
Can frighten offwhich
New Entrants due
Threat of
* Low cost position makes them
New
creates
* at
higher
to the need to:
Enter Large Scale
profits
to be
better able to absorb cost increases
* More likely to make very large Entrants for entire
Cost industry
Competitive
* Take time to move down the
purchases which reduces chance “Learning Curve”
of supplier power

Bargaining Rivalry Among Bargaining

Power of Competing Firms Power of
Suppliers in Industry Buyers

Well positioned relative to Can mitigate Buyer Power by:

Substitutes in order to:
* Make investments to create substitutes Driving prices far below
Threat of competitors which may
* Can buy patents developed by cause exit and shift power
potential substitutes Substitute
back to firm
* Lower prices to maintain Products
value position
 Major Risks of Cost Leadership
Business Level Strategy

Dramatic technological change could take

away your cost advantage

Competitors may learn how to imitate

Value Chain

Focus on efficiency could cause Cost Leader

to overlook changes in customer preferences
Differentiation Business Level Strategy
Effectiveness with Differentiation
grows out of Value Chain activities
Examples:

Heineken beer Raw materials

Steinway pianos Raw materials & Workmanship

Mercedes Benz autos Technology and Workmanship

Intel microprocessors Technological superiority

Caterpillar tractors Service buyers’ needs quickly

anywhere in the world
Create Value with Differentiation by:

Lowering Buyers’ Costs

Raising Buyers’ Performance

Creating Sustainability through:

• Creating barriers by perceptions of uniqueness
• Creating switching costs through differentiation
 Drivers of Differentiation
Examples:

Unique product features

Unique product performance
Exceptional services
New technologies
Quality of inputs
Exceptional skill or experience
Detailed information
Effective Differentiators can remain
profitable even when the
Five Forces appear unattractive
Effective Differentiators can remain profitable
even when the Five Forces appear unattractive
Threat of
New
Entrants

Can fend off New Entrants

because:

* New products must

surpass proven products
* Or be equal to performance
at lower prices
Effective Differentiators can remain profitable
even when the Five Forces appear unattractive
Can fend off New Entrants because:
Threat of New products must
*
New surpass proven products
Entrants * Or be equal to performance
at lower prices

Can mitigate Buyer Power because: Bargaining

Power of
Well differentiated products reduce Buyers
customer sensitivity to price increases
 Effective Differentiators can remain profitable
even when the Five Forces appear unattractive
Can fend off New Entrants because:
Threat of New products must
*
New surpass proven products
Entrants * Or be equal to performance
at lower prices
Well positioned relative to
Substitutes because:
Bargaining
* Brand loyalty tends to Power of
reduce new product trial Suppliers
and brand switching
Can mitigate Buyer Power
because well differentiated
Threat of products reduce customer
Substitute sensitivity to price increases
Products
Effective Differentiators can remain profitable
even when the Five Forces appear unattractive
Can fend off New Entrants because:
Threat of New products must
*
New surpass proven products
Entrants * Or be equal to performance
at lower prices

Bargaining Can mitigate Supplier Power by:

Power of
Suppliers
* Absorbing price increases dueBargaining to
higher margins Power of
Well positioned relative to Suppliers
* Passing
Substitutes because:on higher supplier prices

because
* Brand buyers
loyalty tends to
reduce new product trial and
are brand loyal
Can mitigate Buyer Power
brand switching
Threat of because well differentiated
products reduce customer
Substitute sensitivity to price increases
Products
 Effective Differentiators can remain profitable
even when the Five Forces appear unattractive

Can mitigate Supplier Power by:

Threat of Can fend off New Entrants because:
Absorbing price increases
*
due to higher margins New Brand
New
loyalty
products must
Entrants *
* Passing on higher supplier prices overcomes much
surpass proven products
because buyers are brand loyal
*price competition
Or be equal to performance
at lower prices

Bargaining Rivalry Among Bargaining

Power of Competing Firms Power of
Buyers in Industry Suppliers

Well positioned relative to

Substitutes because:
* Brand loyalty tends to
reduce new product trial and
brand switching
Can mitigate Buyer Power
Threat of because well differentiated
products reduce customer
Substitute sensitivity to price increases
Products
Major Risks of a Differentiation
Business Level Strategy

Customers may decide that the

cost of “uniqueness” is too great

Competitors may learn how to

imitate Value Chain

The means of uniqueness may no

longer be valued by customers
Differentiation Business Level Strategy
Key Criteria:

Value provided by unique features

and value characteristics

Command premium price

High customer service
Superior quality

Prestige or exclusivity

Rapid innovation
Differentiation Business Level Strategy
Requirements:
Constant effort to differentiate products through:
Developing new systems and processes

Shaping perceptions through advertising

Quality focus

Capability in R&D
Maximize Human Resource contributions
through low turnover and high motivation
 Value Creating Activities Common to a
Cost Leadership Business Level Strategy
Firm Infrastructure
Activities M
Support
Human Resource Management AR
Technological Development G
IN
Procurement

M Service
Operations

Outbound

Marketing
Logistics
Inbound

& Sales
Logistics

IN
G
R
A
Primary Activities
 Value Creating Activities Common to a
Inbound
Cost Leadership Business
Logistics Level Strategy
Simplified Planning Relatively Few
Cost Effective
MIS Systems Firm Infrastructure
Practices to Reduce
Highly Efficient
Planning Costs
Management Layers to
Reduce Overhead
Systems to Link
Activities M
Support Effective Training Programs
Human Resource
Consistent Policies to
Reduce Turnover Costs toManagement
Suppliers’
Improve Worker
Efficiency and Effectiveness AR
Products with the
Easy-to-Use Manufacturing Investments in Technology in order
Technological Development
Firm’s Production G
Technologies to Reduce Costs Associated with
Manufacturing Processes
IN
Processes
Systems and Procedures to find the

Raw Materials
Procurement
Lowest Cost Products to Purchase
Frequent Evaluation Processes to
Located
Monitorin ClosePerformances
Suppliers’

Highly Efficient Efficient Plant Proximity with

Delivery Schedule
Small, Highly Effective Product

M Service
Systems to Link Scale to Minimize that Reduces
Suppliers Trained Sales Installations to

Operations

Outbound
Suppliers’ Manufacturing Costs Force Reduce Frequency

Marketing
Logistics
Inbound
Logistics
Inbound

Products with the Costs and Severity

& Sales
Logistics

IN
Firm’s Production Selection of Low Products Priced to of Recalls
Processes Timing of Asset Cost Transport Generate Sales

G
Purchases Carriers Volume

R
A
Located in Close Policy Choice of Efficient Order National Scale
Proximity with Plant Technology Sizes Advertising
Suppliers
Organizational Interrelationships
Learning with Sister Units

Primary Activities
 Value Creating Activities Common to a
Operations
Cost Leadership Business Level Strategy
Efficient Plant
Simplified Planning Relatively Few
Cost Effective
Firm
Practices to Reduce Scale to Minimize
Infrastructure
Management Layers to
MIS Systems Planning Costs Reduce Overhead
Mfg. Costs
Activities M
Support Effective Training Programs
Human Resource Management
Consistent Policies to
Reduce Turnover Costs to Improve Worker
Timing of Asset A
Efficiency and Effectiveness

Easy-to-Use Manufacturing Investments inPurchases

Technology in order
RG
Technological Development
Technologies to Reduce Costs Associated with IN
Policy Choice of
Manufacturing Processes
Systems and Procedures to find the
Lowest Cost Products toProcurement
Purchase
PlantProcesses
Frequent Evaluation Technology
to
Monitor Suppliers’ Performances
Raw Materials
Highly Efficient Efficient Plant Delivery Schedule
Organizational
Small, Highly Effective Product

M Service
Systems to Link Scale to Minimize that Reduces Learning
Trained Sales Installations to

Operations

Outbound
Suppliers’ Manufacturing Costs Force Reduce Frequency

Marketing
Logistics
Inbound

Products with the Costs and Severity

& Sales
Logistics

IN
Firm’s Production Selection of Low Products Priced to of Recalls
Processes Timing of Asset Cost Transport Generate Sales

G
Purchases Carriers Volume

R
A
Located in Close Policy Choice of Efficient Order National Scale
Proximity with Plant Technology Sizes Advertising
Suppliers
Organizational Interrelationships
Learning with Sister Units

Primary Activities
 Value Creating Activities Common to a
Outbound
Cost Leadership Business Level Strategy
Logistics
Simplified Planning Relatively Few
Cost Effective
MIS Systems Firm Infrastructure
Practices to Reduce
Planning Costs
Management Layers to
Reduce Overhead
Delivery Schedule
that Reduces Costs
Activities M
Support Effective Training Programs
Human Resource ManagementSelection
Consistent Policies to
Reduce Turnover Costs to Improve Worker
Efficiency and Effectiveness ARof Low
Easy-to-Use Manufacturing
Technological Development
Investments in Technology in order G
Cost Transport
Technologies to Reduce Costs Associated with
Manufacturing Processes Carriers IN
Systems and Procedures to find the Efficient Order
Lowest Cost Products toProcurement
Frequent Evaluation Processes to
Purchase Monitor Suppliers’ Performances
Raw Materials Sizes
Highly Efficient Efficient Plant Delivery Schedule Small, Highly Effective Product
Interrelationship

M Service
Systems to Link Scale to Minimize that Reduces Trained Sales Installations to

Operations

Outbound
s Reduce
with Frequency
Sister

Outbound
Suppliers’ Manufacturing Costs Force

Marketing
Logistics

Logistics
Inbound

Products with the Costs and Severity

& Sales
Logistics
Products Priced toUnits

IN
Firm’s Production Selection of Low of Recalls
Processes Timing of Asset Cost Transport Generate Sales

G
Purchases Carriers Volume

R
A
Located in Close Policy Choice of Efficient Order National Scale
Proximity with Plant Technology Sizes Advertising
Suppliers
Organizational Interrelationships
Learning with Sister Units

Primary Activities
 Value Creating Activities Common to a
Marketing
Cost Leadership Business Level Strategy
& Sales
Simplified Planning Relatively Few
Cost Effective
MIS Systems Firm Infrastructure
Practices to Reduce
Planning Costs
Management Layers to
Reduce Overhead
Small, Highly
Trained Sales Force
Activities M
Support Effective Training Programs
Human Resource Management
Consistent Policies to
Reduce Turnover Costs to Improve Worker
Efficiency and Effectiveness
Products
AR Priced
to Generate Sales
Easy-to-Use Manufacturing
Technological Development
Investments in Technology in order G
Volume I
Technologies to Reduce Costs Associated with
Manufacturing Processes N
Systems and Procedures to find the
Procurement
Frequent Evaluation Processes to
Lowest Cost Products to Purchase National Scale
Monitor Suppliers’ Performances
Raw Materials Advertising
Highly Efficient Efficient Plant Delivery Schedule Small, Highly Effective Product

M Service
Systems to Link Scale to Minimize that Reduces Trained Sales Installations to

Operations

Outbound
Suppliers’ Manufacturing Costs Force Reduce Frequency

Marketing
Logistics
Inbound

Products with the Costs and Severity

Sales
Logistics

& Sales

IN
Firm’s Production Selection of Low Products Priced to of Recalls
Processes Timing of Asset Cost Transport Generate Sales

G
Purchases Carriers Volume

R
A
&
Located in Close Policy Choice of Efficient Order National Scale
Proximity with Plant Technology Sizes Advertising
Suppliers
Organizational Interrelationships
Learning with Sister Units

Primary Activities
 Value Creating Activities Common to a
Cost Leadership Business Level Strategy
Cost Effective
Simplified Planning
Firm Infrastructure
Practices to Reduce
Relatively Few
Management Layers to
Service
MIS Systems Planning Costs Reduce Overhead Effective Product
Activities
Support Effective Training Programs Installations
M to
Human
Consistent Policies to
Reduce Turnover Costs ResourceEfficiency
toManagement
Improve Worker
and EffectivenessReduce AR
Easy-to-Use Manufacturing Investments in Technology inRecalls
order G
Technological Development
Technologies to Reduce Costs Associated with
Manufacturing Processes
IN
Systems and Procedures to find the
Procurement
Frequent Evaluation Processes to
Lowest Cost Products to Purchase
Raw Materials
Monitor Suppliers’ Performances

Highly Efficient Efficient Plant Delivery Schedule Small, Highly Effective Product

Service
M Service
Systems to Link Scale to Minimize that Reduces Trained Sales Installations to

Operations

Outbound
Suppliers’ Manufacturing Costs Force Reduce Frequency

Marketing
Logistics
Inbound

Products with the Costs and Severity

& Sales
Logistics

IN
Firm’s Production Selection of Low Products Priced to of Recalls
Processes Timing of Asset Cost Transport Generate Sales

G
Purchases Carriers Volume

R
A
Located in Close Policy Choice of Efficient Order National Scale
Proximity with Plant Technology Sizes Advertising
Suppliers
Organizational Interrelationships
Learning with Sister Units

Primary Activities
 Value Creating Activities Common to a
Cost Leadership Business Level Strategy
Simplified Planning Relatively Few
Cost Effective
MIS Systems Firm Infrastructure
Practices to Reduce
Planning Costs
Management Layers to
Reduce Overhead

Activities M
Support Effective Training Programs
Human Resource Management
Consistent Policies to
Reduce Turnover Costs to Improve Worker
Efficiency and Effectiveness AR
Easy-to-Use Manufacturing
Technological Development
Investments in Technology in order G
Technologies to Reduce Costs Associated with
Manufacturing Processes
IN
Systems and Procedures to find the
Procurement
Frequent Evaluation Processes to
Procurement
Lowest Cost Products to Purchase
Raw Materials
Monitor Suppliers’ Performances

Highly Efficient Efficient Plant Delivery Schedule Small, Highly Effective Product

M Service
Systems to Link Scale to Minimize that Reduces Trained Sales Installations to

Operations

Outbound
Suppliers’ Manufacturing Costs Force Reduce Frequency

Marketing
Logistics
Inbound

Products with the Costs and Severity

& Sales
Logistics

IN
Firm’s Production
Processes Procurement
Timing of Asset
Selection of Low
Cost Transport
Products Priced to of Recalls
Generate Sales

G
Purchases Carriers Volume

R
Systems and Procedures to Find Frequent Evaluation

A
Located in Close Policy Choice of Efficient Order National Scale
theProximity
Lowest with Cost
PlantProducts to
Technology Sizes Processes to Monitor
Advertising
Purchase
Suppliers
Raw Materials Suppliers’ Performances
Organizational Interrelationships
Learning with Sister Units

Primary Activities
 Value Creating Activities Common to a
Cost Leadership Business Level Strategy
Simplified Planning Relatively Few
Cost Effective
MIS Systems Firm Infrastructure
Practices to Reduce
Planning Costs
Management Layers to
Reduce Overhead

Activities M
Support Effective Training Programs
Human Resource Management
Consistent Policies to
Reduce Turnover Costs to Improve Worker
Efficiency and Effectiveness AR
Easy-to-Use Manufacturing
Technological Development
Investments in Technology in order G
Technologies to Reduce Costs Associated with
Manufacturing Processes
IN
Systems and Procedures to find the
Procurement
Frequent Evaluation Processes to
Lowest Cost Products to Purchase
Raw Materials
Monitor Suppliers’ Performances

Highly Efficient Efficient Plant Delivery Schedule Small, Highly Effective Product
Technological Development

M Service
Systems to Link Scale to Minimize that Reduces Trained Sales Installations to

Operations

Outbound
Suppliers’ Manufacturing Costs Force Reduce Frequency

Marketing
Logistics
Inbound

Products with the Costs and Severity

& Sales
Logistics
Easy-to-Use Investments in Technology in

IN
Firm’s Production Selection of Low Products Priced to of Recalls
Timing of Asset Cost Transport
Manufacturing
Processes
order to Reduce Costs
Generate Sales

G
Purchases Carriers Volume

R
Technologies Associated with Manufacturing

A
Located in Close Policy Choice of Efficient Order National Scale
Proximity with Plant Technology Sizes Processes Advertising
Suppliers
Organizational Interrelationships
Learning with Sister Units

Primary Activities
 Value Creating Activities Common to a
Cost Leadership Business Level Strategy
Simplified Planning Relatively Few
Cost Effective
MIS Systems Firm Infrastructure
Practices to Reduce
Planning Costs
Management Layers to
Reduce Overhead

Activities M
Support Effective Training Programs
Human Resource Management
Consistent Policies to
Reduce Turnover Costs to Improve Worker
Efficiency and Effectiveness AR
Easy-to-Use Manufacturing
Technological Development
Investments in Technology in order G
Technologies to Reduce Costs Associated with
Manufacturing Processes
IN
Human Procurement
Resource Management
Systems and Procedures to find the
Lowest Cost Products to Purchase
Raw Materials
Frequent Evaluation Processes to
Monitor Suppliers’ Performances

Consistent Policies
Highly Efficient Efficientto
Plant Effective Training Programs
Delivery Schedule Small, Highly Effective Product

M Service
Systems to Link Scale to Minimize that Reduces Trained Sales Installations to
Reduce
Suppliers’Turnover Costs to Improve WorkerReduce Frequency
Operations

Outbound
Manufacturing Costs Force

Marketing
Logistics
Inbound

Products with the Costs Efficiency and Effectiveness and Severity

& Sales
Logistics

IN
Firm’s Production Selection of Low Products Priced to of Recalls
Processes Timing of Asset Cost Transport Generate Sales

G
Purchases Carriers Volume

R
A
Located in Close Policy Choice of Efficient Order National Scale
Proximity with Plant Technology Sizes Advertising
Suppliers
Organizational Interrelationships
Learning with Sister Units

Primary Activities
 Value Creating Activities Common to a
Cost Leadership Business Level Strategy
Simplified Planning Relatively Few
Cost Effective
MIS Systems Firm Infrastructure
Practices to Reduce
Planning Costs
Management Layers to
Reduce Overhead

Activities M
Support Effective Training Programs
Human Resource Management
Consistent Policies to
Reduce Turnover Costs to Improve Worker
Efficiency and Effectiveness AR
Easy-to-Use Manufacturing Investments in Technology in order G
Firm Infrastructure
Technological
Technologies Development to Reduce Costs Associated with
Manufacturing Processes
IN
CostSystems
Effective Simplified
and Procedures to find the Planning Relatively Few
Lowest Cost Products toProcurement
Frequent Evaluation Processes to
Purchase
MIS Raw
Systems
Materials
Practices Monitor
to Reduce Management Layers
Suppliers’ Performances

Highly Efficient Planning

Efficient Plant Costs
Delivery Schedule Small, Highly to Reduce Overhead
Effective Product

M Service
Systems to Link Scale to Minimize that Reduces Trained Sales Installations to

Operations

Outbound
Suppliers’ Manufacturing Costs Force Reduce Frequency

Marketing
Logistics
Inbound

Products with the Costs and Severity

& Sales
Logistics

IN
Firm’s Production Selection of Low Products Priced to of Recalls
Processes Timing of Asset Cost Transport Generate Sales

G
Purchases Carriers Volume

R
A
Located in Close Policy Choice of Efficient Order National Scale
Proximity with Plant Technology Sizes Advertising
Suppliers
Organizational Interrelationships
Learning with Sister Units

Primary Activities
 Focused Business Level Strategies
Focused Business Level Strategies involve the same basic
approach as Broad Market Strategies.
However, opportunities may exist because:

Large firms may overlook small niches

Firm may lack resources to compete industry-wide

May be able to serve a narrow market segment

more effectively than industrywide competitors

Focus can allow you to direct resources to certain

value chain activities to build competitive advantage
 Focused Business Level Strategies
Focused Business Level Strategies involve the same basic
approach as Broad Market Strategies.
However, opportunities may exist because:

May be able to retrofit old factories to keep costs

down
Minimize R&D costs by copying innovators
Examples:

Bang & Olufsen Upscale electronic components

Snap-on tools High quality mechanics’ tools

Iams Company Premium pet foods

 Focused Business Level Strategies
Focused Business Level Strategies involve the same basic
approach as Broad Market Strategies.
However, opportunities may exist because:

Focused Differentiators may thrive by selecting a

small market that is underserved by large players

Example:

Custom manufacturers of parts for

Harley-Davidson motorcycles
Major Risks Involved With a Focused
Differentiation Business Level Strategy

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
 Generic Business Level Strategies
Source of Competitive Advantage

Cost Uniqueness

Broad Cost Differen-

Target
Leadership tiation
Breadth of
Market
Integrated Low
Competitive Cost/
Scope Differentiation
Narrow Focused Focused
Target
Market Low Cost Differen-
tiation
Integrated Low Cost/Differentiation Strategy
Firms using an Integrated Strategy may:
Adapt more quickly
Learn new skills and technologies

Utilize Flexible Manufacturing 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 which
simultaneously driving down costs
Integrated Low Cost/Differentiation Strategy

Recognize that the Integrated Low Cost/

Differentiation business level strategy involves a
Compromise

The risk is that the firm may become “Stuck in

the Middle” lacking a strong commitment to or
expertise with either type of generic strategy
Integrated Low Cost/Differentiation Strategy
Southwest Airlines
Low Cost Differentiation
Use a single aircraft model
Focus on customer
(Boeing 737)
satisfaction
Use secondary airports
High level of employee
Fly short routes dedication
No meals
New flight services for
15 minute turnaround time
business travelers
No reserved seats (phones and faxes)
No travel agent