Business Level Strategy
Business Level Strategy
In business, the question of who will buy your products or services is a fundamental decision. The strategy you choose should help you attract new customers and motivate them to buy. The strategy should also be geared toward achieving corporate objectives. According to Jim Walsh, area chair of strategy at Michigan Ross School of Business, there are three interrelated questions that define business strategy.
Cost leadership strategy
Cost leadership is a business strategy that combines low per-unit costs with high sales. Cost leaders typically target a broad population or a niche that has high demand volumes. They also minimize advertising and research and development. However, cost leaders must be careful not to lose quality and image in the process. If they do, they may find themselves out of touch with the market. In addition, they must continue to innovate and find new ways to keep costs down.
Cost Leadership can also be practiced by non-profit organizations. Using cost leadership as a strategy can help them gain market share and increase profitability. The goal of a focused cost leadership strategy is to provide unique features to a niche market, which enables them to differentiate themselves from competitors. This type of focus strategy is often used by local charities.
The use of information systems also became a strategy, which enabled cost leadership to emerge. Many companies pursuing cost leadership strategies began exploring ways to use computer systems to reduce costs, while others focused on differentiating their products by integrating information processing capabilities into them. In the case of equipment, these companies introduced self-diagnosis systems, which can anticipate when something will break and call maintenance crews before it fails.
Cost leadership strategy at the business level is an effective strategy in many industries. By reducing prices and increasing quality, cost leaders can attract enough customers to remain profitable. However, this strategy is not suitable for all industries. Here are three examples of firms that practice cost leadership at the business level:
Cost focus strategy
Focusing on cost is an important strategy for a business that has a modern production system and a niche market. It allows a company to allocate more of its expensive production capacity to the most popular items in the market, which can boost margins. A focus strategy can also be used to develop a unique cost advantage. For example, a small airline that offers domestic travel rates may have an edge over large carriers by offering a competitive cost structure.
Cost leadership, also known as cost focus strategy, involves lowering costs relative to your competitors while increasing efficiency. A business that adopts this strategy typically has a high level of investment in technology, efficient logistics, and a low cost of materials and labor. However, it needs to continually work on reducing costs relative to other firms to remain competitive.
A focus strategy can create an environment where other companies are tempted to copy the successful strategy. This can result in imitation and a change in target segments. One example of a focus strategy is Claire's, a store that sells inexpensive jewelry and accessories. The company's cost leadership strategy has been very successful, and the stores are typically located in shopping malls.
Another important benefit of this strategy is that it allows the business to produce a particular product at a lower cost structure, which creates a cost advantage for its customers. By understanding the needs of a niche market, a business can develop a loyal base of customers. Moreover, a focus strategy can help a business find previously undiscovered needs and wants in a market.
Differentiation focus strategy
Differentiation focus strategy for business level strategy involves providing unique features for a targeted segment of customers. For example, a company that sells outdoor sporting equipment will command a premium price for their name-brand gear. Another firm will focus on a specific demographic segment, and charge a premium for a retro-style silk camp shirt.
Focus differentiation can be beneficial to some companies, but can lead to high prices for the goods and services. Focused companies develop exemplary expertise, making it difficult for rivals to compete against them. Another concern is that the demand in the niche can be limited, which may mean that the only way to grow is to expand into another market segment, which requires developing new skills.
Focusing on a narrow segment can help a company adapt faster to changes in customer expectations and product demands. By using customer focus groups, interaction and other research tools, a focused company can more effectively address the needs of a small customer segment. Focused companies must also learn the needs of each customer segment.
In contrast, a company with a focus on serving specific customer segments, such as those with a high disposable income, may benefit from a differentiation focus strategy. By focusing on a niche, a firm can offer superior customer service to attract more customers. However, it may have to adjust its pricing to remain competitive.