Module 3 Strategy Formulation Business level strategy

Introduction An effectively formulated strategy marshals, integrates and allocates firm’s resources, capabilities, and competencies so that it will be properly aligned with external environment.

Introduction It indicates the choices the firm has made about how it intends to compete in individual product markets. The business strategy is the core strategy that the firm forms to describe how it intends to compete in a product market.

Customers 1.Who will served 2.What are the need 3.How to satisfy

Purpose of business level strategy to create difference between the firm’s position and those of its competitors. To position itself from competitors, a firm must decide 1.Perform activity differently 2.Perform different activity

Types of business level strategy

Variables 1.Competitive advantage Cost Uniqueness 2.Competitive scope Broad target Narrow target

Business level strategy None of the five business level strategy is inherently or universally superior to the others. The effectiveness of each strategy is contingent both on opportunity & threat of external environment and strengths & weakness of internal environment.

1. Cost leadership Firm set out to become low cost producer in its industry. The firm has broad scope and serves many industry segments. Low cost producers typically sell a standard product and place considerable emphasis on reaping economies of scale.

1. Cost leadership Cost advantage may gain from economies of scale, proprietary technology, preferential access of raw material etc. A cost leader cannot ignore the bases of differentiation. ( proximity to differentiation)

2. Differentiation A firm seeks to be unique in its industry along some dimension that are widely valued by buyers. It selects one or more attributes that many buyers of the industry perceive as important and position itself to meet these needs. It is rewarded for its uniqueness with premium price.

2. Differentiation Differentiation can be based on product itself, delivery system, marketing approach etc.. Differentiation must aim for cost parity. Customized products Examples: Apple’s iPod

3.Focus In general, the firms’ core competencies used to serve the need of a particular industry segment or niche to the exclusion of others. Focus strategy examples –Buyer groups Youths/senior citizens –Product line segments Professional painter groups –Geographic markets West vs. East coast

Stuck in middle Ex: Reliance petroleum

Pursuit more than one generic strategy Sometime a firm may be able to create two largely separate business unit within the same corporate entity, each with different generic strategy. Ex: Maruti 800, Maruti SX4 Suboptimized approach to competing made likely by the spillover among units of corporate policies and culture will lead to becoming stuck in middle.

Pursuit more than one generic strategy If firm can achieve cost leadership and differentiation simultaneously, the reward are great because the benefits are additive. High price and low cost Ex: crown cork and seal ( metal container industry)

Risk of the generic strategy Cost leadership Competitor imitate Technology change Proximity of differentiation lost Cost focusers achieve even lower cost in segment

Risk of the generic strategy Differentiation Competitor imitate Base of differentiation become less important to buyers Cost Proximity lost Differentiation focusers achieve even greater differentiation in segment

Risk of the generic strategy Focus Competitor imitate Segment become unattractive Segment difference from other segment become narrow. The advantage of broad line increase.