Business Level
Strategy
Exploration and Production,
Refining,
Petrochemicals,
Retail,
Telecommunications
Levels of Strategy
Corporate level
Business Level
Functional/Departmental
level
Levels of
Strategy
Corporate
Strategy
Definition
Market Definition
Business Strategy Market Navigation
Functional
Strategy
Example
Diversification into new
product or geographic
market
Secure competitive
advantage in existing
product/geographic market
Support of
Information Systems.
Business/Corporate Human Resource Practices
and Production Processes
Business Level
Strategy
Business-Level Strategies
It is an integrated and coordinated set of
commitments and actions designed to
provide value to customers and gain a
competitive advantage by exploiting core
competencies in specific, individual product
markets.
Source: Hitt et al (2012), Strategic Management: A South-Asian Perspective
Purpose-Business-Level (BL) Strategies
Two types of competitive advantage firms must
choose between
Cost (Are we LOWER than others?)
Uniqueness (Are we DIFFERENT? How?)
Two types of competitive scope firms must
choose between
Broad target
Narrow target
These combine to yield 5 different BL strategies
Five Business-Level Strategies
Source: Hitt et al (2012), Strategic Management: A South-Asian Perspective
Types of Competitive Advantage
Willingness to Pay
Supplier Opportunity
Cost
Industry
Average
competitor
Successful
Differentiated
competitor
Successful
Low-cost
competitor
Competitor
with dual
advantage
1. Cost Leadership
Cost Leadership
Economies of Scale
Learning and Experience
Proprietary Knowledge
Lower Input Costs
Unique/Different Business Model
Cost Leadership (CL)
Competitive advantage
The low-cost leader operates with
margins greater than competitors
Competitive scope
Broad (industry-Wide)
A firm that successfully implements a
cost leadership strategy can earn
above-average returns even when the
five competitive forces are strong.
Cost Leadership (CL) - FIVE Forces:
Rivalry against existing
competitors
Bargaining Power of Buyers
(Customers)
Bargaining Power of Suppliers
Potential Entrants
Product Substitutes
Cost Leadership (CL) - FIVE Forces:
Rivalry against existing competitors
Bargaining Power of
Buyers (Customers)
Bargaining Power of Suppliers
Potential Entrants
Product Substitutes
Cost Leadership (CL) - FIVE Forces:
Rivalry against existing competitors
Bargaining Power of Buyers
(Customers)
Bargaining Power of
Suppliers
Potential Entrants
Product Substitutes
Cost Leadership (CL) - FIVE Forces:
Rivalry against existing competitors
Bargaining Power of Buyers
(Customers)
Bargaining Power of Suppliers
Potential Entrants
Product Substitutes
Cost Leadership (CL) - FIVE Forces:
Rivalry against existing competitors
Bargaining Power of Buyers
(Customers)
Bargaining Power of Suppliers
Potential Entrants
Product Substitutes
Competitive Risks-Cost leadership
Strategy
Source of cost advantage becomes
obsolete
Focus on cost may cause the firm to
overlook important customer
preferences
Imitation
2. Differentiation
Differentiation
Product Features
Reliability/Quality
Convenience
Brand
2. Differentiation
Competitive advantage
Differentiated product with a higher WTP
Competitive scope
Broad (Industry-Wide)
A firm that successfully implements a
differentiation strategy can earn
above-average returns even when the
five competitive forces are strong.
Differentiation - Five Forces
1. Rivalry against existing competitors
Differentiation - Five Forces
2. Bargaining Power of Buyers
(Customers)
Differentiation - Five Forces
3. Bargaining Power of Suppliers
Differentiation - Five Forces
4. Potential Entrants
Differentiation - Five Forces
5. Product Substitutes
Competitive Risks of the
differentiation strategy
Customers determine that the
cost of differentiation is too great
The means of differentiation may
cease to provide value for which
customers are willing to pay
Focus Strategies
Focus Strategies
Why???
May lack resources to compete in the broader
market
May be able to more effectively serve a narrow
market segment than larger industry-wide
competitors
Large firms may overlook small niches
3. Focused Cost
Leadership
3. Focused Cost Leadership
Competitive advantage: Lowcost
Competitive scope: Narrow
industry segment
4. Focused
Differentiation
4. Focused Differentiation
Competitive advantage:
Differentiation
Competitive scope: Narrow industry
segment
Risk of using Focus strategies
A competitor may be able to focus on a more
narrowly defined competitive segment and
"outfocus the focuser
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
Customer needs within a narrow competitive
segment may become more similar to those of
industry-wide customers as a whole
5. Integrated Cost
Leadership and
Differentiation
5. Integrated CL/Differentiation
Efficiently produce products with differentiated
attributes
Efficiency: Sources of low cost
Differentiation: Source of unique value
Can adapt to new technology and rapid changes in
external environment
Three sources of flexibility useful for this strategy
