Meaning Of Business Level Strategy
A detailed outline comprising the company’s goals, policies, and actions with the focus on delivering the best value to the customers while maintaining a competitive edge in the market is called business-level strategy.
Business-level strategy determines the value or position of the firm in the market over its rivals. It also affects the efficiency of how a company will serve its customers and determines the direction of its profits as well.
Thus business-level strategy can be defined as the perfect set of actions and moves performed with the motive of lending value to the customers and obtaining a competitive advantage by using the enterprise’s core proficiency, in the market.
Adapting the right business-level strategy is very important for a successful business. Before formulating a business-level strategy, a business needs to identify its targeted customers, product range, competition, market trends, available resources, capability, etc.
Just like ambition without strategy is the same as music without rhythm, the same case is with business. In business as well you cannot win without a proper plan and that plan is called business-level strategy.
The position of an enterprise in the market is based on the business-level strategy chosen by the enterprise. Although there are a wide range of business-level strategies out there in the market all these strategies have these three things in common –
1) Customer satisfaction
2) Good ROI or good profits.
3) Competitive advantage in the market.
The business-level strategies are not only different for different organizations but they can be different for different units of the same organization. That is because every business unit serves a different audience and has different targets thus they need different strategies to function in the market and derive a competitive edge in the market. Now let us move to different types of business-level strategies.
Types of Business-level Strategies
There are different ways to deliver customer satisfaction by maintaining a competitive edge in the market over the rivals, and these different methods are discussed below –
Cost Leadership Strategy
To stimulate growth business enterprises generally try to introduce their products in the market at the lowest cost possible. This strategy of manufacturing the products or services at a lower cost than the competitors and gaining a competitive edge in the market is called the Cost leadership type of business-level strategy.
This strategy works best in the market where the customers are price sensitive and are available to the masses. We all know that price is the most common factor in consumer purchases and due to this cost leadership strategy is the most common type of business level strategy used. Some factors which can help us to achieve a cost leadership strategy are –
- efficiently using the company’s resources.
- Investing in the latest technologies to work faster and smarter.
- Accurate demand forecasting of the products and services.
- Achieving economies of scale with the help of mass production.
Another way to stimulate growth, companies to try to grab a competitive edge in the market by offering unique, distinct, and different products to the customers. The products and services can be unique in their design, specifications, or anything that differentiates them from the product and services of their competition.
Differentiation strategy is a way of standing out in the masses and compelling the customers to choose your product and services over your rivals. This strategy is believed to be the best strategy that can deliver unexpected results if implemented efficiently because sameness is the default for most companies today.
Under this strategy, a company must invest in innovation and out-of-the-box thinking. Companies often charge a bit higher than their competitors under this strategy for their uniqueness and distinctness. Thorough market research must be done to find out the gaps in the operating industry and that must be filled by the business to stand out their products and services.
Some of the mechanisms that one must follow to obtain differentiation are –
- Create a brand image.
- Decide what you want to be known for.
- Tell your story to the customers.
- Develop differentiators like superior quality, design, relationship, distribution, service, etc.
- Research your targeted audience.
However, sometimes this strategy can even backfire on the business as if creating a product that is too different from the existing ones in the market and is complicated for the customer, there is a high chance of it getting rejected by the masses. Thus, businesses must keep this factor in mind as well.
Integrated Low Cost and Differentiation Strategy
Previously we discussed two business strategies in which one focuses on lowering the cost while the other aims to provide a unique product to the customers. Integrated low-cost and differentiation strategy is the combination of both these strategies. Under this strategy, the business enterprises focus on gaining a competitive edge in the market by offering something unique at a lower cost by cutting the cost of production and operations. This type of strategy is considered the need of the hour due to the change in global consumer trends.
This is also known as a hybrid strategy and is considered to be very risky as the firm needs to invest in cutting costs as well as differentiation. The logic behind this strategy is that the consumers will incline more toward a mid-priced unique product rather than a cheap generic product.
Tips one must follow to implement an integrated low-cost and differentiation strategy are –
- Cut off unnecessary expenses.
- Keep adding new features to your services and products.
- A specific niche must be chosen by the business. (micro-niche)
When a business wants to target a specific or smaller segment of the market, it takes the help of a focus strategy. When a company follows this strategy it mainly takes care of three things –
- The target market must be of considerable size.
- There are chances of potential growth in the selected niche.
- There are no chances of the considerable effect of competitors over the firm.
Focus strategy is further divided into two sub-parts –
a) Focused Differentiation
Firms use this strategy to create a competitive advantage in the market by offering a distinct product that is hard to replace or substitute. Firms using this strategy work on a very specific niche and target unattended or vacant areas of the industry which holds great potential for profitability as well.
b) Low-Cost Focused Differentiation
This strategy is the same as focused differentiation but instead of offering a differentiated product to the customer firms focus on offering products and services at a lower cost to a targeted niche.
Generally, this strategy is used by smaller firms that cannot offer multiple products at the same time in the market. The main aim of this strategy is to provide maximum value to the customers but at a lower price. The firms focus on achieving economies of scale under this strategy.
Tips to implement a Focus strategy are –
- Optimal use of resources.
- Continuous innovation and change in the products and services offered to maintain a competitive advantage.
- Picking up a very specific niche that is out of the sights of business leaders, cost leaders, and differentiators.
Importance of Business-Level Strategy
The main purpose of business-level strategy is to create value for the customers and maximize returns by mapping progress. To survive in the market, organizations take the help of business-level strategies to achieve their targets and goals. Business-level strategy acts as a roadmap that leads an organization to growth and profitability.
Business-level strategy is important because of the following points –
- Gives control over costs.
- Allows realization of actual challenges.
- Helps manage vendors, suppliers, and other external stakeholders.
- Helps in fighting the talent war.
Advantages of Business-level Strategy
The business-level strategy holds various advantages and is important for businesses of all sizes. They provide a direction to the business and help to set goals and aims to achieve them. Key advantages of business-level strategy are as follows-
Helps in establishing direction
Without a clear direction, the business will always be in doubt about what goals the firm needs to achieve. Business-level strategies provide a clear direction to the enterprise. They help in achieving the targets by stating the clear path to fulfilling them.
Aids in making wise decisions
Investing in new technology may make clear sense to innovate the product and speed up the production process, but may not seems like a good choice otherwise. The business-level strategy helps in determining good and bad decisions. With the help of business-level strategy, one can easily differentiate if a decision would be fruitful for the enterprise or not.
Helps in measuring success
The business-level strategy sets smaller targets which would help an enterprise to measure success by comparing the company’s performance to the targets set. The business strategy makes sure that we keep a track of what we are working towards and that we are constantly progressing.
Helps in grabbing a competitive advantage in the market
With the help of business-level strategy, the products and services of the companies stand out in the crowd either in terms of price, in terms of uniqueness, or both. Thus, businesses get a competitive advantage over their rivals in the market with the help of business-level strategies.
Disadvantages of Business-Level Strategy
Despite being a very helpful tool for businesses, there are some demerits of business-level strategies as well. They are as follows –
Business-level strategy is a complex process that involves continuous assessment of internal and external factors, and short-term and long-term organizational objectives. These components are interrelated and a change in one of these factors results in a change in the other.
Requires extensive skillful planning
To implement a business strategy an organization needs to predict the future which is full of uncertainty and risks. So to avoid pitfalls, business managers need to have the right skill set to choose a business strategy that will act as the right catalyst in the process of growth of the organization.
Difficult to implement
The business-level strategies are hard to implement as the managers who formulated the strategies must actively participate in the implementation process as well. The strategies must be continuously kept in check and necessary changes must be made to them whenever required.
Characteristics of Business-Level Strategy
Key characteristics of business-level strategies are –
Business-level strategies are measurable
Business-level strategies can be measured in terms of numbers. For example, if you want to double the sales by the end of the next year then you will have data backing up this strategy which can be measured.
They are actionable
Business strategies are achieved through tactics and actions. Business strategies are always dependent on the forces that are under your control and not on the forces out of your control.
They include a business plan
To achieve a business-level strategy there is a requirement for a solid business plan. Without a business plan, a business strategy is just like music without rhythm.
They don’t change much
Business-level strategies evolve with the evolution of business. It is an ongoing process and necessary changes are made whenever needed but those changes are not frequent.
Business-level strategies are clear
Business-level strategies require clear and continuous communication. The employees must be aware of what they are working towards. Business strategy must guide the actions and decisions of the employees and to provide proper guidance the strategies must be crisp and clear.
Example of Business-Level Strategy
In our example of business-level strategy, we will talk about the leading enterprise in the smart technology world APPLE.
Apple uses a differentiation type of business-level strategy. Precisely, the company differentiates its products on simple, yet attractive design and effective advanced functionality. It focuses on providing the best customer experience by creating an ecosystem. Apple’s business strategy focuses on these four points –
- Prime focus on design and functionality of products.
- Upgrading customer experience.
- Strengthening the apple ecosystem.
- Decreasing dependence of the business on the sales of iPhones to prioritizing its services business and other divisions.