LECTURE 4 - THE BUSINESS AND FUNCTIONAL LEVEL

BUSINESS LEVEL STRATEGY :

Business level strategies refer to strategies that firms use to build competitive advantage. These strategies include low cost leadership, differentiation and focus strategy.

BUSINESS LEVEL STRATEGIES SEEK TO ANSWER THE QUESTIONS :

1. Should the firm compete on the basis of lower cost or should we differentiate our products or services on some basis other than costs such as quality or services?
2. Should we compete head to head with our major competitors for the biggest but most sough-after share of the market, or should we focus on a niche in which we can satisfy a less sought-after but profitable segment of the market?

MICHEAL PORTER'S GENERIC STRATEGIES :

COST LEADERSHIP STRATEGY :

Cost leadership strategy refers to the firm's ability to produce goods and services at a lower cost than its rivals.

Firm can achieve cost leadership through cost minimizing along the firm's value chain activities, economies of scale,experience curve effects, efficient scale facilities, waste reduction and reduction and producing high volumes of standardized products.

Example :

• MYDIN
• AIRASIA
• DELL
• McDONALD

DIFFERENTIATION STRATEGY :

Differentiation strategy is a business level strategy based on providing buyers with a unique or special product or service that distinguishes the firm's products or services from its competitors.
Differentiation strategy consists of creating differences in the firm's products or services by offering something that is perceived industry wide as unique and valued by customers.
Differentiation can take many forms such as brand image, unique styling, technology, features, a dealer network, customer service or innovative designs.

Companies which have successfully used the differentiation strategy include :

• ROLEX
• SONY
• FedEx
• LOUIS VUITTON
• VOLVO
• HARLEY-DAVIDSON
• APPLE

FOCUS STRATEGY :

Focus strategy refers to the business level strategy based on providing products or services to a specific niche within an industry. This strategy based on the firm competing in a narrow scope within an industry. A firm following this strategy selects a segment or group or segments and tailor its strategy to serve them.

Examples of specific market segments that can be targeted by a focus strategy:

• Particular consumer group such as babies, senior citizens, pregnant mothers.
• Different segment of a product line such as people who prefer organic food, do-it-yourself enthusiasts
• Different geographic or regional markets.

Focus strategies can occur in two forms:

1. Cost-based focus > a firm strives to create cost advantage in its target segments. For example, Gap aims its Old Navy clothing line at customers who are cost conscious.
2. Differentiation-based focus > a firm seeks to differentiate in its target market. For example: Porsche is a focused differentiation that markets its sports cars only to the most affluent customers.

3 main risks associated with the focus strategy:

• Competitors may 'out-focus' the focuser.
• The preference and the needs of niche member may shift over time toward the product attributes desired by the majority of buyers.
• The segment may become so attractive for competitors to specialize in the same target market, intensifying rivalry and splintering segment profits.
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FUNCTIONAL LEVEL STRATEGY:

~Action taken at the functional or operational level and they must be in line or contribute towards the overall strategy of the corporation.

~very much related to the supply chain.

VALUE CHAIN:

A systematic approach to examine the development of competitive advantage.