Business Level Strategy-3

8/4/2019 Business Level Strategy-3

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Business-level Strategy

Presented by

Manisha SinghMahesh PatwardhanPooja ChavanHemant Lanjekar


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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 Leadership2) Differentiation3) Focused4) Integrated cost Leadership/Differentiation

Five Forces of Competition


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Definitions Strategy

A strategy is an integrated and coordinated set of

commitments and actions designed to exploit corecompetencies and gain a competitive advantage Business-level strategy

A business-level strategy is an integrated andcoordinated set of commitments and actions designedto provide value to customers and to gain a competitiveadvantage by exploiting core competencies in specific,individual product markets

Business-level strategy


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Customers relationship with Business levelStrategy

Superior Value of Product

Interactive Relationships

Customer Loyalty

Profitability Of Firm


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Effective management of customer relationship helpsto answer the questions below

Who What How

Reach

Firms accessand connectionto customers

Ex:-HUL

Richness

Depth and detailof two-way flow of information between the firmand thecustomer

Ex:-Dell

Affiliation

Facilitation of usefulinteractions withcustomers.

Ex:- CRM of Hotel Industry


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Who: Determining the Customers to Serve

Market segmentationMarket segmentation is used to cluster people with similar

needs into individual and identifiable groups

Basis for Customer SegmentationConsumer 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)


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Basis for Customer Segmentation (Contd..)

Industrial markets1 End-use segments(Identified by SIC Code)

2 Product segments (based on technological differences orproduction 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


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Needs (featuresand benefits of

product)

Interactions with customers

Current needsand future

needs

ValueLow cost with

acceptable features

Highly differentiatedfeatures with

acceptable cost


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How: Determining Core Competencies Necessary to Satisfy Customer Needs

CoreCompetencies

Value creatingStrategies

Satisfy customer

needs


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The Purpose of Business Level Strategy

To position itself differently from competitorsFirm must decide whether it intends toPerform activities differently

Or to perform different activities

How tointegrate theactivities itperforms in

ways

Superior value forcustomers

Competitiveadvantage

SuccessfulBusiness level

strategy


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Cost Leadership Strategy

Goods and Services with acceptable features at low costSell Standardized goods or servicesConcentration should not only on reducing cost

Broad customer segmentCompetitive advantage in terms of inbound and outboundlogistics create more valueTo reduce cost some firms outsource the operations

E.g. Nokia mobile in terms of manufacturing battery fromChina, body in Taiwan, etc


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Rivals hesitate to compete on the basis of price with cost leader becauseof his advantageous position

Before competing on basis of low cost the competitor has to evaluatepotential outcomes

E.g. Samsung v/s Micromax

Rivalry with ExistingCompetitors

Bargaining power of buyers(Customers)

Bargaining Power of Suppliers

Potential Entrants

Product Substitutes

Cost Leader increases its efficiency to reduce the cost to level lower thancompetitorsIt leads firm to earn higher profit marginsNew entrants require competencies to earn above average returns

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 pricesBeing able to make very large purchases, reducing chance of suppliers using power

Powerful customers can force leader to reduce its prices to a levelIf customers force the firm to lower the price below the level that will leadcompetitor to exit marketThe firm will remain in market without rivalsCustomers would have to pay then higher prices from a single firm

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


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Competitive Risks of Cost Leadership Strategy

Process used by cost leader may become obsolete due to competitorsinnovation

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 featuresthat customers value


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Differentiation Strategy

It is integrated set of actions taken to produce goods and services(at anacceptable cost) that customers perceive as being different in ways that areimportant 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


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Differentiation Strategy

Customer loyalty exists when loyalty increases price sensitivity of customers decreases

(insulator against competitors)

Rivalry with ExistingCompetitors

Reduces customers sensitivity to price increase

Customers accept price increase in product till Product should satisfies unique nee

Bargaining power of Buyers

As firm charges high price to customers, suppliers must provide high qualitycomponents

But high margins enables firm insulation against this high cost of suppliersCustomers are insensitive to price increaseSo firm can pass the additional cost of supplies to customer

Bargaining power of suppliers

Customer loyalty and need to overcome uniqueness of differentiated product arebarriers

Needs significant investment of resources and patiencePotential Entrants

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

Product Substitutes


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Competitive Risks of Differentiation Strategy

Customers might decide that difference between cost leaders anddifferentiators product is too large

Firms means of differentiation may cease to provide value for which customersare willing to pay

Experience can narrow customers perceptions of the value of a productsdifferentiated features

Counterfeiting (differentiated features at a reduced price)


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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 superiormanner, in order to develop and sustain a competitive advantage andearn above-average returns

Its unique needs are very specialized

Industry wide competitors does not serve or poorly serve those needs


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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


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A firm that successfully uses the integrated costleadership/differentiation strategy should be in a betterposition to:

Adapt quickly to environmental changesLearn new skills and technologies more quickly Effectively leverage its core competencies whilecompeting against its rivals

A commitment to strategic flexibility is necessary for

successful use of this strategy Three sources of flexibility are: flexible manufacturingsystems, information systems networks, total quality management systems

Integrated cost leadership/

differentiation strategy


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Flexible manufacturing systems (FMS)Computer controlled processes used to producea variety of products in moderate, flexiblequantities with a minimum of manualintervention

Goal is to eliminate the low -cost-versus-wide-product- variety trade -off

Allows firms to produce a large variety of products atrelatively low costs

Sources of strategic

flexibility


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Information networksLink companies electronically with theirsuppliers, distributors and customers

Facilitate efforts to satisfy customer expectations interms of product quality and delivery speedBetter understanding of customer needs usingcustomer relationship management (CRM) systemsImprove flow of work among employees in the firmand their counterparts at suppliers and distributorsCompany-wide efficiency improvements usingenterprise resource planning (ERP) systems


flexibility (contd)


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Total quality management (TQM) systems

Increase Customer Satisfaction

Cut CostsReduce amount of time required to introduceinnovative products to the market place


flexibility (contd)


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Often involves compromisesBecoming neither the lowest cost nor the mostdifferentiated firm

Becoming stuck in the middle Lacking the strong commitment and expertise thataccompanies firms following either a cost leadershipor a differentiated strategy Earning below-average returns

Competing at a disadvantageEven so, the integrated strategy is an appropriate choicefor firms possessing the core competencies to producesomewhat differentiated products at relatively low prices

Competitive risks of the integratedcost leadership/differentiation

strategy


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Thank You

Documents

Business Level Strategy-3