Volume 4, Number 2, April – June’ 2015
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COMPARATIVE STUDY OF DIFFERENT TYPE OF BUSINESS LEVEL STRATEGY
Lalita Dhingra21
ABSTRACT
Finally, it is clear that no particular strategy is superior to others. The selection of ideal strategy totally depends upon some
factors, like financial resources, government policy, competitor’s strategy, market position and changed occur in the
environment. The business level strategy has to be changed according to internal and external environment.
KEYWORDS
Business Level Strategy, Financial Resources, Government Policy, Competitor’s Strategy etc.
INTRODUCTION
After external and internal analysis, the next step the company is to think about different alternative strategies, which match their
resources and capabilities with the external threats and opportunities. Hence, this paper plans to study different types o f strategies
Alternative, there are two types of strategies, and one is business level strategies and corporate level strategies (Grand Strategies).
In this paper, we compare only business level strategies.
BUSINESS LEVEL STRATEGIES (GENERAL STRATEGIES)
According to Porter, strategies allow organization to gain competitive advantage from three different bases: cost leadership,
differentiation and focus. Porter calls these base generic strategies. Cost leadership emphasizes producing standardized prod ucts at
a very low per-unit cost for consumers who are price-sensitive. Differentiation is a strategy aimed at producing products and
services considered unique industry wide and directed at consumers who are relatively price-insensitive. Focus means producing
products and services that fulfill the needs of small group of consumers. These strategies focus on different organizational
arrangement, control procedures and incentives systems. Large firms adopted cost leadership and differentiation basis whereas
smaller firms adopted focus strategies. Strategist should do cost benefit analysis to evaluate “Sharing opportunities” among a
firm’s existing and potential business units. Sharing activities and resources enhances competitive advantage by lowering cos ts or
raising differentiation.
Figure-1: Types of Business Level Strategies
Sources: Authors Compilation
OBJECTIVES OF STUDY
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To compare the study of different type of Business level strategy
To select the best business level strategy for efficient business.
METHODOLOGY OF RESEARCH
This paper attempts to throw light on the conceptual issues associated with business level strategies. It is also descriptive in nature
where focus is on fact - finding investigation with adequate interpretation. Therefore, secondary data were collected.
COST LEADERSHIP STRATEGY
Here the business works hard to achieve the lowest production and allocation costs, so that it can price lesser than its comp etitors
can and win a large market share. Firms following this strategy must be good at engineering, purchasing, manufacturing and
21
Assistant Professor, DAV Centenary College, Haryana, India, [email protected]
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Volume 4, Number 2, April – June’ 2015
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(2012): 3.53, SJIF (2013): 5.085, SJIF (2014): 5.842
physical allotment and need less skill in marketing. Cost leadership is often driven by company competency, size, scale, scop e and
collective experience.
Situations under Which Cost Leadership is Used
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The product/service is standardized.
Accurate demand forecasting and high capacity utilization is essential.
Attaining economies of scale leads to lower per unit cost.
The buyers may be large and possess a significant bargaining power.
There might be few ways available for differentiation to take place.
The cost of switching from one seller to another is low.
Benefits
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Cost advantage is possibly the best insurance against industry competition.
Powerful suppliers possess higher bargaining power to negotiate price increases for inputs. Organizations that possess a
cost advantage are less affected in such a scenario as they can absorb the price increases to some extent.
The threat of cheaper substitutes can be offset to some extent by lowering prices.
Cost advantage act as an effective entry barriers for potential entrants, who cannot offer the product/service at a lower
price.
Organizations that possess a cost advantage are less affected in such a scenario as they can absorb the price increases to
some extent.
Cost leadership in basic words, means the lowest cost of process in the industry.
Developing economies of scales refers to how businesses can optimize profits by scaling up their operations while
pursuing greater efficiency.
The Cost Leadership Strategy Is Not Risk Free
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Lock up of Resources: leader has to lock up his resources in fixed assets and equipment. After investing in such rigid
production and distribution technologies, it becomes complicated for the firm to squeeze a more innovative
technological process.
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Imitation by Competitive Leaders: Cost advantage is short-lived. It does not remain for long as competitors can
imitate the cost reduction technique easily.
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Shifting of Technology: Technological shift are a great threat to the cost leader as there may change the ground rules
on which an industry operates.
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Dilute Customer Focus: Cost leadership is obviously not a market friendly approach often; severe cost reduction can
dilute customer focus.
At last, cost leadership strategy aim to exploit scale of production, well-defined scope and other economies producing highstandardized product, using high technology.
Low cost leadership strategies are based on a firm’s ability to offer a product or service at lower cost than its rivals. When a firm
is able to build cost advantage over other competitors, it can pass on the benefits to customers and gain a large market share. e.g.
low cost producers of Ghadi detergent, Anchor toothpaste, Gemini oil brand etc. The best example can be those of coca cola, cola
Pepsi cola and cigarettes. For many years, for instance coca cola meant only one thing to consumers. It was a patented soft d rink
available in single flavor and bottle size and shape. Its theme was “Things go better with Coca Cola”.
In the last years, more and more companies choose a strategic mix to achieve market leadership. This pattern consists of superior
customer service and product leadership.
DIFFERENTIATION STRATEGY
Here the business concentrates on achieving superior performance in an important customer area valued by a large part of market.
It can strive to be the service leader, the quality leader and so on, but it is hardly possible to be all of these things.
Situations under Which Cost Leadership is Used
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The market is too large to be served by a few firms offering standardized product/service.
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Customer needs and preferences are too diversified to be met through standardized product/service.
The firm is able to charge a premium for an advantage that is valued by customers.
The product is such that customer loyalty can be obtained and sustained.
It is possible for the organization to charge a premium price for differentiation that is valued by the customer.
Benefits
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Brand Loyalty: Customer brand loyalty too acts as safeguard against competitors. Brand loyal customers are also
generally fewer prices sensitive.
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High Prices: Powerful buyers do not usually negotiate. Price decrease as they have fewer options with regard to
suppliers.
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Entry Barrier: Differentiation is an expensive proposition. Newer entrants are not normally in a position to offer
similar differentiation at a comparable price so that differentiation acts as entry barrier to new entrants.
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Variety Product: It is an effective way of enhancing customer responsiveness by providing them with a wide array of
product or service in the market. In this strategy, company develop unique products to respond to customer’s
preferences as opposed to one homogenous goods.
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Enhance Creativity: Most companies keep inventing new products that enable them to remain relevant. Firms compete
to create unique product or services that satisfy customer demands through differentiation.
Risks Faced under Differentiation
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Unless differentiation is based on some unique proprietary knowledge, skill, expertise.
Excessive differentiation can seriously affect the competitive advantage.
Price premiums to have a limit. Charging too high price for differentiated features may cause the customer to forego the
additional advantage from a product/service based on her own cost- benefit analysis.
Differentiation can be fail if the customer does not value it.
Companies require many resources for carrying out a market research to know the customer need, product development,
advertisement and monitoring.
It’s usually difficult for new firms to enter an existing market due to several barriers.
The best example is that of General Motors of America that tries to produce car for the need of every citizen irrespective of their
purpose and personality. The cereal companies minutely differentiate among the health conscious adults, working women, finicky
teenagers and toddlers while launching new cereals. Every group has a cereal carefully designed especially for its needs, but the
company name remains always in the fore ground in ads and packaging. This also holds true for soaps and shampoos. In India
Hindustan Lever Ltd, Godrej Limited, Proctor and Gamble India Ltd and others have used this effectively. Even known Tea
companies Brooke Band and Lipton took full advantage when they rested the roost.
FOCUS STRATEGY
Here the business focuses on one or more narrow market segments rather than going after a large market. The firm gets to know
the needs of these segments and pursues either cost leadership or a form of differentiation within the target segment.
Condition
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The selected market is big enough to be profitable.
The major players in the industry are not interested in that segment.
Required necessary skills and expertise.
There is some type of uniqueness in the segment.
Benefits
 Through adopting the focus strategy, a firm ideally focuses on specific target markets. This ordinarily distinct group has
specialization in the required field.
 The focused organization buy in small quantities and so powerful supplies may not so much interest.
 The focused organization is protecting from competition.
 Powerful buyers are less likely to shift loyalties, as they might not find other willing to cater to the niche market as the
focused organization.
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The competence of the focused organization acts as an effective.
The competence of the focused organization act as effective entry barrier to potential entrants to the niche markets .
The focus strategy is the best choice for small business as they customarily lack the resources.
Risks
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In this strategies market segment is very narrow and it is difficult to move to other segments of market.
A major risk lies in the cost configuration for the focused organization.
Customer needs are ever changing, which means our customer focused business needs to have the resources, such as
financing, staffing etc.
HOW TO SELECT BEST STRATEGY
1.
Financial Resources: A company selects the strategy according to its financial resources. Company with limited
financial resources will go for focus strategy. On the other hand, strong financial position permits company to adopt
differentiated strategy.
2.
Product Life Cycle: Product life cycle generally has four stages-introduction, growth, maturity & decline. When
product is in introduction stage the cost leadership strategy is better. As the product moves towards the other stage, the
firm tries to increase sale. At the stage of maturity, the firm should adopt differentiated marketing strategy.
3.
Market Homogeneity: Market homogeneity means the degree to which the consumers are alike in their preferences,
tastes, desires, etc. In such case, cost leadership is suitable. On the other hand, differentiated cost leadership is more
suitable in heterogeneous markets.
4.
Competitors’ Marketing Strategy: A marketer should consider competitor is marketing strategy while adopting
strategy for his segments. When competitors are active, differentiated strategy is more suitable. On the other hand, when
the competitors are adopting strategies, a firm can gain by adopting cost leadership strategies.
5.
Government Policy: Government policy has the impact on the selection of marketing strategy. Government frames the
policies to protect the interest of the masses. A marketer has to follow the guidelines given by the government.
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