Business Level Strategy Explained

Summary

This video explores business-level strategies that organizations can use to gain a competitive advantage. It explains key concepts like cost leadership, differentiation, and integrated strategies, each with examples from well-known companies like Amazon, Apple, and IKEA. The lesson emphasizes the importance of choosing the right strategy based on market conditions and core competencies, highlighting how firms can target broad or niche markets. With real-world examples and strategic implications, the video offers a comprehensive overview of how businesses can succeed by differentiating themselves or maintaining low costs.

Takeaways

• 😀 Business-level strategies are used by organizations to achieve a competitive advantage in the marketplace by exploiting core competencies.
• 😀 Business-level strategies focus on how to compete in a market, while corporate-level strategies focus on what markets a business should operate in.
• 😀 There are two primary types of competitive advantage: cost leadership (lowering costs) and differentiation (offering unique products).
• 😀 Organizations must also choose between broad market strategies (serving large markets) or narrow market strategies (targeting niche segments).
• 😀 The five generic business-level strategies are: cost leadership, differentiation, focus cost leadership, focused differentiation, and integrated cost leadership differentiation.
• 😀 Cost leadership helps defend against competitors by enabling an organization to maintain profitability even with lower prices. Amazon is a great example of this strategy.
• 😀 Differentiation strategies focus on uniqueness, allowing firms to charge premium prices. Apple is a prime example of differentiation with its unique product design.
• 😀 Focused cost leadership targets a niche market by offering products at a lower cost. Checkers is an example, offering a fast-food experience with a reduced overhead cost.
• 😀 Focused differentiation targets a specific market segment with unique features and quality, as seen with Rolls-Royce cars, which offer luxury to a select group of customers.
• 😀 Integrated cost leadership differentiation combines both cost efficiency and differentiation, often called a hybrid strategy. IKEA and Southwest Airlines are examples of this approach.
• 😀 A hybrid strategy can be risky as it requires investment in both cost reduction and differentiation, which may lead to a company getting stuck in the middle if not executed effectively.

Q & A

What is the primary purpose of a business level strategy?

The primary purpose of a business level strategy is to help an organization achieve a competitive advantage in the marketplace by exploiting its core competencies and providing value to customers.

What are the two types of competitive advantage an organization can choose from?

An organization can choose between two types of competitive advantage: cost leadership, where the focus is on ensuring the company costs less than its competitors, and differentiation, where the company aims to be distinct from its competitors.

What are the two types of competitive scope an organization must decide on?

The two types of competitive scope are broad market, where the company targets a large market, and narrow market, where the company focuses on a niche or small segment of the market.

What are the five generic business level strategies in the matrix?

The five generic business level strategies are: cost leadership, differentiation, focus cost leadership, focused differentiation, and integrated cost leadership differentiation.

Why is no one generic business strategy better than the others?

No one generic strategy is better than another because an organization can be successful using any of these strategies. The key is to choose the right strategy based on the competitive environment and the organization's core competencies.

What distinguishes business level strategies from corporate level strategies?

Business level strategies focus on how an organization should compete in a particular market, while corporate level strategies concern in what markets the organization should operate. Business level strategies deal with competition within markets, and corporate level strategies address market selection.

What are the key defensive properties of a cost leadership strategy?

The key defensive properties of a cost leadership strategy include defending against rivalry by maintaining profits despite competition, defending against suppliers by absorbing cost increases, protecting from powerful buyers through lower prices, defending against new entrants by creating barriers through scale, and defending against substitutes by building customer loyalty.

Can you give an example of a company using a cost leadership strategy?

Amazon is an example of a company using a cost leadership strategy. It maintains low prices by leveraging its buying power, operating without physical stores, and using state-of-the-art distribution facilities.

What is the main goal of a differentiation strategy?

The main goal of a differentiation strategy is to build a unique product or service that stands out in the marketplace, typically by focusing on superior quality, customer service, design, or uniqueness, and charging a premium price.

How can a company using a focused differentiation strategy defend itself against competitors?

A company using a focused differentiation strategy can defend itself through brand loyalty and uniqueness, which prevents customers from switching to competitors. This strategy works by targeting a small, specific market segment.

What is an integrated cost leadership and differentiation strategy, and can you give an example?

An integrated cost leadership and differentiation strategy is a hybrid approach that combines cost reduction with differentiation, aiming to offer unique products at competitive prices. IKEA is a good example, as it provides unique, affordable products by focusing on automation and design.

What risks are associated with the integrated cost leadership and differentiation strategy?

The risks associated with this strategy include being stuck in the middle, where a firm's products are neither cheap enough to compete on price nor sufficiently differentiated. It also poses challenges in balancing the investment in both cost reduction and differentiation.