The business strategy is a set of decisions and actions performed to achieve the goals of the organization. Formulation of strategy is important but the most important part is to implement this strategy. The strategy is basically future course of actions to be performed for the sustainability and growth of the business. It provides a roadmap to the organization to achieve its goals and objectives.
Read more to know about business strategy: There are different types of business level strategies adopted by the organizations depending on the external and internal factors and the types of the business. In this article we will learn about some of the types of business level strategies. Common business level strategies adopted by the businesses are as follows:
Cost leadership is a business strategy where a market leader decides the price of a product or service due to its dominant position and other players are compelled to match that price. In this strategy the company achieves the competitive advantage by being the low cost producer or service provider. There are many benefits of this strategy. (i) The cost leaders focus on increasing the efficiency of production processes to lower production costs which results in lower prices of the products or services, (ii) The companies using this strategy are able to withstand price wars, (iii) As most of the customers like to buy products at lower prices and hence the cost leaders will be able to sell more products which means they are able to grab larger market share. The increased market shares further helps reducing the unit price of the product and increases the profitability of the company.
Now the question arises, how the cost leaders are able to become the lowest cost producers as compared to other players in the market. They usually adopt the below mentioned competitive strategies to do this:
(1) Creating Economy of Scale
An economy of scale is a business strategy which focuses on the reaping the cost advantages of mass production. If a firm produces some product at a mass scale, then the unit cost of producing the product is decreased and this becomes the competitive advantage of the company. This strategy can be adopted by the big companies having enough capacity to produce some product in mass quantity.
(2) Developing Advance Technology
Cost leaders invests in a technology which can enhance efficiency and lower operating cost, enabling them to produce large quantity at lower price.
(3) Sourcing Raw Materials
If a company has control over the source of raw materials, then it can easily reduce the cost of production and eventually control prices of the goods produced. Therefore, the cost leaders pay more attention to own or control the sourcing or raw material to maintain their dominant position in the market.
Example: MacDonald’s is an excellent example of cost leadership strategy. Its low cost burgers are its competitive advantage. MacDonald’s is able to do it because it has optimized the cooking processes which is easy to learn by all employees. The company recruit fresher employees as oppose to the experienced cooks which enables it to pay low wages. Further, it owns the facilities that produce the ingredients for their products, which further minimizes cost of its products.
Product differentiation strategy
In a differentiation strategy, the company produces a product or service with unique attributes as compared to its competitors. The product or service differentiate itself form others in such a way that it becomes a competitive advantage for the company. To employ this strategy, you need to conduct extensive market survey and make investment is research and development function to fulfill the gap in the market or to improve your existing product or service.
An organization pursuing this strategy can expect higher revenues since it provides unique features or value to the customer for which the customer is willing to pay more price. Therefore, the margins and profits of the company are higher in this case.
Example: Apple Inc. is the most common example of the firm who adopted product differentiation strategy. Apple is known for delivering the unique products like iPhones, iPads, MacBook, iPods, etc. Apple products are so different in design and technology that they can’t be imitated by the rivals and this factor provides the biggest competitive advantage to Apple Inc.
Apple Inc. manages to differentiate itself from its competitors mainly in three ways. The iconic, elegant and unique designs of apple products differentiate its products from the other products in this segment. Due its elegancy and simplicity of designs, the customer value these products and willing to pay premium price for them. Secondly, the apple has its unique operating system which is different from other operators and it provides excellent user experience to its customers. The third differentiating factor about Apple Inc. is the pricing strategy. Apple keeps the prices of its products significantly higher than those of its competitors which makes it more profitable.
Focus and Niche Strategies
This strategy is different from other strategies in such a way that the company pursuing this strategy focuses on a small segment or group of customers to cater their needs. The company achieves a competitive advantage by optimizing this strategy in its target segment.
The focus strategy can be applied in two ways, cost focus, in which the firm seeks the cost advantage in the target segment and differentiation focus, in which the firm focuses on the differentiation in its target segment.
Focus strategy is based on extensive market survey, research and product development to cater the specific needs of target segment so that the product offered may best served the need of target segment in a way different from its competitors.
Example: An example of focused and niche strategy is Pepsi Black which was introduced as a part of their focus strategy to cater the needs of customers who are looking for healthier beverages. It has very low aspartame and higher caffeine content as compared to diet Pepsi and is sold as a zero-calorie variant
Price- skimming Strategy
In this strategy high prices are charged from the customers particularly during the introductory phase of a product. This strategy is used usually by small companies to quickly recovery their manufacturing and advertising costs. However, the product should be unique and special such that the customers are willing to pay exorbitant price for the product. One way of doing this is by introducing new technology. The disadvantage of this strategy is that it tends to attract competition relatively quickly.
Example: If you consider Apple Inc., then you will find the Apple uses this strategy for its new launch products. Its products are highly priced at their launch and when its competitors like Samsung Galaxy provide similar features in their products then Apple reduces the price of its products so that they may retain their competitive advantage.
This strategy is adopted by introducing new products or adding new features to the existing product or service. Sometime companies are forced to introduce new features to their existing products to keep up with the competitors, otherwise the customers may switch over to other products or companies. One example of this strategy is mobile phone companies continuously add new features to their phones to keep pace with the changing technology. If they will not do so, they will be out of the competition soon.
Example: Samsung continuously upgrades its mobile phones and add features to its products. This is a growth strategy which is required to be adopted by the company otherwise its customers will switch over to other products or companies. In addition to providing new features to the existing mobile phones, Samsung add new products to its portfolio like Galaxy Z Flip 4, Galaxy Z Fold 4, etc., which are foldable mobile phones.
A company having surplus capital may acquire its suppliers or competitors to gain competitive advantage in the market. For example, an Indian food restaurant company acquiring a Chinese food restaurant is the acquisition strategy.
Example: One of the best example of this strategy is acquisition of Future Group by Reliance Industries. Reliance has taken over 200 Future Group stores as part of their acquisition strategy so that it can further strengthen its retail business.
Adopting right business level strategy is crucial for the sustainability and growth of a company. There are many types of business level strategies as discussed above but the company should choose the strategy according to the industry environment, the product or service its offering and other relevant factors. Before adopting a business level strategy, you should understand customer requirements, find a gap in the market and then take decision which is aligned to the core values of your organization.