Goal-setting is one thing but making a plan or a layout to achieve those goals is another thing. In fact, ambitions without a strategy are just like music without rhythm. The same is the case with business; you simply cannot “win” without a solid plan-of-action- a business-level strategy.
Yes, you may have heard this term before, but today, we are going to discuss it in detail. We will go through different types of business-level strategy, and how corporations apply them to achieve their organizational goals. As usual, let’s start with the basics!
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What is a Business Level Strategy?
Business-level strategy, in simple words, is a layout, plan, or roadmap that helps a business to provide value to the customers and gain a competitive advantage by making the best use of its core competencies.
The business-level strategy you choose will have a decisive role in establishing your position in the market. In fact, it is the foundation of your ultimate organizational goals. A business-level strategy may be of different types, but it must always consider three integral elements;
- Customer satisfaction/happiness (providing value to the customers)
- Developing and maintaining a competitive advantage.
- Avoiding a competitive disadvantage.
- A strong ROI – making profits.
The business-level strategy may vary for the same organization’s different business units (strategic business units). In such a situation, every strategic business unit (SBU) will have its own business-level strategy.
Now, every business unit may not follow the same strategy as other units. That is because every SBU serves a different audience and even may belong to a different industry. Keeping that in mind, every SBU may follow a different type of business-level strategy. Our next section is all about the various types of business-level strategies.
Types Of Business-Level Strategies
As we mentioned earlier, a business-level strategy mainly focuses on developing a competitive advantage. Now, there are different ways to do that, and we are going to discuss them one by one.
Cost Leadership Strategy
This one is probably the most common type of business-level strategy. There are no simple words to say that but price is one of the most important factors in a consumer’s purchase decision. Following a cost leadership strategy, a business tries to manufacture its product(s) or service(s) at a lower cost than its competitors.
Cost leadership strategy works better when you are targeting a mass market, and your customers are price-sensitive. The firm (practicing this strategy) will focus on reducing costs at all levels, including procurement, production, packaging, storing, distributing, etc.
Tips On How to Achieve Cost Leadership
- Use the firm’s resources in an efficient way.
- Accurate and timely demand forecasting of your products or services.
- Achieving economies of scale with the help of mass production.
- Keep investing in the latest technologies to work smarter.
As the name clearly suggests, differentiation strategy, in a sense, is the opposite of cost leadership. Differentiation strategy mainly focuses on creating a competitive advantage by offering a unique product or service. This uniqueness can be due to the design, features, specifications, or anything that differentiates the product from rivals’ products in the market.
Differentiation strategy is suitable for both mass markets as well as a narrow market. The “motto” of differentiation strategy is “quality over cost,” but it doesn’t mean a business cannot sell a unique product at a lower cost. In fact, this would be a perfect combination of cost leadership and differentiation strategy.
Although differentiation strategy can help a business to become the industry leader, it is only effective as long as a firm keeps offering something unique and unprecedented.
How To Achieve Differentiate Your Brand/Product
- Make innovation your “best friend.”
- Keep improving the product performance.
- Offer value to your customers according to their preferences and taste.
- Set your product price based on your customers’ purchasing power and product features.
As we discussed in the previous section, a firm can integrate two strategies (integrated low-cost/differentiation) according to its business needs. This strategy focuses on developing a competitive advantage by offering something unique and reducing the overall manufacturing/operational costs as well. As a matter of fact, integrated low-cost/differentiation is the need of the hour because of changing global consumer trends.
Now, this can be confusing for many of us, so we are going to explain it with the help of a real-world example- Southwest Airlines.
This is how the company operates and achieves its goals.
|Low-Cost Segment||Differentiation Segment|
|Shorter flight routes||Higher employee dedication level|
|Utilizing secondary airports||More focus on achieving customer happiness/satisfaction|
|Operating with only aircraft model (Boeing 737)||Different flights services for business class (i.e., faxes and phones)|
|No reserved seats|
|No flight meals|
|15-minute turnaround time.|
Tips On How to Implement Low-Cost/Differentiation Strategy
- Choose a specific niche (micro-niche)
- Cut unnecessary expenses (in the above-mentioned example, there is no point in offering flight meals for shorter routes)
- Keep adding new features to your offerings.
Focus strategy, as the name suggests, is helpful for businesses that want to target a specific (and smaller) segment of the market. The company following this approach mainly considers three things while selecting a niche;
- The target market must have a considerable size.
- The chances of potential growth are on the higher side.
- The competitors don’t have a considerable effect on the firm.
Focus strategy can be further classified into two categories;
- Focused differentiation
- Focused low-cost
A firm following this strategy works on a very specific niche/subset of the market that has enough potential for profitability. The main focus is to create a competitive advantage by offering a product that is difficult to substitute/replace. Most importantly, the firm concentrates on “unattended” or vacant market areas and builds a competitive advantage.
Focus Low-cost is just like the focused differentiation approach. That is, this approach also targets a particular niche, but the firm also focuses on achieving economies of scale.
Generally, smaller firms (those who cannot offer multiple products simultaneously) opt for this option. The idea is to provide maximum value to the customer but reduce the overall costs at all levels.
Tips To Implement Focus Strategy
- Select a very specific niche that couldn’t get the attention of industry leaders, differentiators, or cost leaders.
- Highly efficient use of resources.
- Constant innovation and improvement to create and maintain a competitive advantage.
Examples of Business Level Strategies
Amazon is an ideal example of a cost leadership strategy. This global giant has literally wiped out any competition or hurdle in its way. Here is how;
- Amazon achieved economies of scale as the company doesn’t have any brick-and-mortar stores. They have warehouses, and they sell online.
- The company maximizes its operational efficiency through advanced networking and computing technology.
- Amazon has automated the majority of its operations, such as purchasing process, scheduling process, etc.
A global industry leader and a member of the “Big Five” (tech companies), Apple Inc is a perfect example of product differentiation. Apple has earned unprecedented fame and respect in the tech industry with its products such as iPad, iPod, Macintosh line computers, and the iconic iPhone. The company differentiated itself because of;
- Its unique, elegant, and minimalist product designs.
- Amazing and extremely useful product features.
- Different pricing strategy; Apple sells its products at higher prices because the company provides unparalleled value.
The Swedish-based eCommerce company, Happy Socks has expanded its services to 90 different countries. The company focuses on a differentiation strategy (product differentiation) by offering unique features in their products. In fact, every clothing item they launch turns into a fashion trend. Apart from that, their exquisite packaging is another differentiating factor.
Regarding the integrated low-cost/differentiation strategy, IKEA would be the perfect example of this business practice. The company invests a lot in automation, logistics, and its designers. IKEA offers Products that you won’t get anywhere else and that too at low cost.
How to Implement business Level Strategy
Implementation of a business-level strategy needs a lot of homework and consists of different steps, which are;
- Identify and Understand Your Market. First things first, a firm needs to identify a target market and understand its dynamics. Is the firm going to target a specific niche or a mass-market? How does the market work? Is there enough growth potential? What type of customers does the business have to deal with?
- Know Your Customers’ Needs. Once the company selects a target market, it is time to have a better understanding of its target audience’s needs. The company’s think tank needs to answer few questions such as, what exactly do our customers need? Do they prefer quality or quantity? Are they willing to accept innovation? Are they ready to pay for innovation?
- Brainstorm How to Satisfy their Needs. Once you know Who you are serving and What you are serving, it is time to decide How you will do that. In this step, you will have to make decisions about your vendors, distributors, suppliers, logistics, etc.
- Conduct a Competitors Analysis. One thing which you cannot skip is analyzing your competitors. What are they doing? How are they doing it? What strategy are they following? What are their weaknesses? What are the industry gaps you can target? Where can you build a competitive advantage of your own?
- Assign Tasks to Concerned Department. Any corporation succeeds only if there is strong coordination between its departments. The senior management must integrate different departments and assign them tasks with a specific timeline. Yes, it is important to set individual goals for every department, but it is essential that all the organizational departments work hand in hand.
- Review the Outcomes on Regular Intervals. Any business-level strategy would be incomplete without regular evaluation. A business needs to make sure that management, employees, and departments are doing what they are supposed to do. If something is not working according to the plans, find the loopholes and fix them.