Chap7 Business-Level Strategies
Chap7 Business-Level Strategies
Chap7 Business-Level Strategies
FOURTH EDITION
Chapter 7
BUSINESS-LEVEL
STRATEGIES
• Cost leadership (lower cost / broad target market) When the competitive
advantage of an organisation lies in lower cost of products or services
relative to what the competitors have to offer, it is termed as cost
leadership.
• Differentiation (differentiation / broad target market) When the
competitive advantage of an organisation lies in special features
incorporated into the product / service which is demanded by the customers
who are willing to pay for it then the strategy adopted is the differentiation
business strategy.
• Focus (lower cost or differentiation / narrow target market) They are
niche strategies and rely on either cost leadership or differentiation but
cater to a narrow segment of the total market.
• Quick Response (Responding to the market needs faster than your rivals).
Broad
(Where to compete)
Overall Broad
COMPETITIVE
target
Cost leadership differentiation
market
SCOPE
Low-cost Differentiated
products/services Products/services
COMPETITIVE ADVANTAGE
(How to compete)
Source: Adapted from M.E. Porter, Competitive Advantage: Creating and Sustaining Superior
Performance (New York: Free Press, 1985): 12.
W. Chan Kim and Renée Mauborgne, Blue Ocean Strategy: How to create Uncontested Market Space and Make Competition Irrelevant (Boston, MA:
Harvard Business Review Press, 2005).
© Azhar Kazmi & Adela Kazmi, 2015 18
Reasons for Focus Business Strategy
Conditions ripe for the adoption of a focus strategy are:
• There is some type of uniqueness in the segment which could either be
geographical, demographic, or based on lifestyle.
• There are specialised requirements for using the products or services that the
common customers cannot be expected to fulfil.
• The niche market is big enough to be profitable for the focussed organisation.
• There is a promising potential for growth in the niche segment.
• The major players in the industry are not interested in the niche as it may not fit into
their own plans or not be crucial to their own success.
• The focussing organisation has a required skill/expertise to serve the niche segment.
• The focussing organisation can guard its turf from other predator organisations on
the basis of customer relations and loyalty it has developed and its acknowledged
superiority in serving the niche segments.
Superior
Advantage due to Low cost with
Relative ability to
differentiation differentiation
differentiate
advantage
Inferior
Stuck-in-the- Advantage due to
middle low cost
Inferior Superior
• Expanding the total market through new users, new uses, and more usage.
TIME
– Companies are first movers and fast followers who have to generate capital internally or
attracted outside capital usually from venture capitalists.
– Demand is being established; customers lack information and are hesitant to try out new
products or services
– Business models are unproven; business uncertainty is high and managerial decisions
involve high risks
In the growth stage of the life cycle the conditions are as mentioned below.
Under these conditions, the strategies could be either low-cost or
differentiation
– Investment and capital needs decrease but gradually. Returns are high.
– Technology gains a firm footing and standardisation increases.
– Demand is established, customers gain information and learn to differentiate
between the product offerings
– Business models take shape and business is on more secure footing and
managerial decisions involve moderate risks
– Market share of incumbent companies increases; new bases for market
segmentation emerge
In the maturity stage of the industry life cycle the conditions are as below.
Under these conditions, business strategies of all three types: cost
leadership, differentiation, and focus are in use.
– Investment and capital decrease significantly. Returns are lower and stabilise.
– Technology developments are few and standardisation is high.
– Demand is stable, customers are well-aware of options available, and have
learnt to choose and differentiate.
– Business models are well established.
– Market shares of companies are steady and jealously guarded
– Industry gets consolidated and is dominated by small number of large
companies
In the decline stage of the industry life cycle the conditions present are as
below. Under these conditions, business strategies of low-cost tend to
gain an upper hand.