Defining Business Level Strategies
What is business level strategy?
A business level strategy definition can be summarized as a detailed outline which incorporates a company’s policies, goals, and actions with the focus on being how to deliver value to customers while maintaining a competitive advantage.
Your business level strategy will determine your position in your industry as well as the direction of your profits. It will also affect the efficiency of how you are able to serve your customer base. The best approach will integrate several types of business level strategy, which are listed below. But first, in order to determine how you will implement these strategies, you have to figure out a few things:
- What is it that your target customers value the most? (I.e., cost savings, brand prestige, product quality, etc.)
- Are you targeting a broad-range or niche market?
- What are your resources?
- What differentiates you from the competition?
- Does your business have the capability to lead and sustain itself in the marketplace in terms of product quality and competitive pricing?
One way to gain perspective is to put yourself in your customer’s position. For example, when shopping for clothing, which types of brands do you purchase from? How do you rank the importance of the pricing, material and manufacturing quality, environmental impacts, brand identity, etc.? Compare this perspective to that of your target customers’ and see how it aligns with your marketing initiative and business resources.
Once you’ve done that, you'll be able to figure out which of the following business level strategy examples will be most effective.
#1 Cost Leadership
If there's one thing that most businesses have in common, it’s that they are competing in the market price-wise. Not only do they want to appeal to a wide range of potential customers, but they also want to have the capacity to sustain a margin on above-average returns. In essence, the Cost leadership Strategy aims to put your business at the forefront of the market in terms of pricing.
To achieve this, there are a few things you can do:
- Increase your profits by reducing operational costs
- Only charge industry-average prices
- Charge lower prices than your competitors
Of course, whether you’re charging average or lower prices for your products, you must do it while reducing operational costs to maintain positive margins. You will also need to have substantial capital to invest in efficient logistics, materials, labor, and the right technology.
The second-most important of all business strategy examples - be different.
This is fundamental in how a business can position itself as an industry-leader in its market. This approach also supports quality over cost. For example, designer goods and reputable customer service. This could even include designer goods at affordable prices, which integrates cost leadership. Differentiation also applies to those with a narrower market, like people who purchase organic produce only, despite higher prices.
As a competing business your goal is to add value to your products and/or services so that they stand out. Effectively implementing your differentiation strategy means that you’ve effectively gained your target customers to your products and/or services so that they stand out. Effectively implementing your differentiation strategy means that you’ve effectively gained your target customers’ trust and they’re willingness to pay a premium price. This ultimately affects your capacity to absorb higher operational costs and investments for your company’s future.
#3 Integrated Low-Cost Differentiation
An Integrated Low-Cost Differentiation strategy gives companies the advantage of learning new technologies and skills quickly while adapting to outside, environmental changes. This integrated approach reads as the first two business level strategy examples listed above at a first glance, however, it’s a more in-depth response to increasing globalization.
This strategy involves leveraging core competencies the multiple business networks, the utilization of flexible manufacturing systems, and the utilization of Total Quality Management (TQM)—all in the effort to create and maintain high-quality products while driving down operational costs.
The best way to explain this business level strategy is the Southwest Airlines example:
- Use of a single aircraft model (the Boeing 737)
- Use of secondary airports
- Shorter flight routes
- No meals
- No reserved seats
- No travel agent reservations
- A 15-minute turn-around time
The Differentiation Portion:
- Greater focus on customer satisfaction
- A higher level of employee dedication
- New flight services for business travel (I.e., phones and faxes)
The combination of their low-cost and differentiation allows for positive compromise. Customers are satisfied with the level of service they experience, the low costs, etc., therefor they are more likely to choose this airline over the pricier competition — who also does not serve in-fight meals.
#4 Focused Differentiation
Focused Differentiation implies a smaller target customer base. The upside with this strategy is a greater capacity for the business to serve their customers with maximum efficiency. This strategy could also be referred to as a “unique” or “niche-focused” strategy.
The competition with the Focused Differentiation approach is the ability to supply the particular customer base in question with more unique and advantageous features. The main components of this strategy include:
- The selection of a profitable market subset
- A focus on the areas in which the competition shows weakness
- A focus on where product substitution is most difficult
A great example of this would be the Rolls Royce. These cars have withstood the unwavering tests of time with their focus on status, quality, and engineering superiority. They are but a subset of the global auto market, however their premium worth and demand remains steady.
#5 Focused Low-Cost
Much like the Focused Differentiation Strategy, the Focused Low-Cost Strategy also aims to corner a small segment of the market. This works best when a business cannot focus on a more generalized cost leadership strategy in that it can’t afford to offer multiple products and/or services at low prices.
So, what do they do?
They focus on one niche or unique feature and work to offer said niche or feature at the lowest cost possible to their targeted market segment. Of course, if there’s heavy competition within this niche, you’ll have to make sure that you can keep your costs at the lowest while also offering at the highest volume.
This strategy requires strong marketing to your target customer base as well as the capacity to produce at a high-volume.
Your Business Level Strategy will determine how you’re able to compete within your market. To figure out which strategy will work best for your business entirely depends on your core competencies, your corner of the market, and the strengths and weaknesses of your competitors. According to Michael Porter, the father of Business Level Strategies, the things you need to do to make each type of strategy work appeals to different kinds of people. So, choose your strategy wisely.