Meaning and Definition of business-level strategy

Meaning and Definition of business-level Strategy

Business-level strategy is an integrated and coordinated set of commitments and actions a firm takes to gain a competitive advantage by exploiting core competencies in specific product markets. It deals with the question: how do we compete? It indicates how a firm competes successfully in an individual product market. It directs a strategic business unit (SBU) toward competitive advantage. A strategic business unit is a part of an organization for which there is a distinct external market for goods and services that is different from another strategic business unit. It may be a separate business or a product line. The business-level strategy follows the corporate strategy. Hence, there should be a clear link between strategies at the SBU level and the corporate level.

From the above discussion, it may be concluded that business-level strategies attempt to enhance the competitive position of a business in a particular market.

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Types of Business Level Strategy

The different types of business-level strategies are mentioned below.

1.Cost leadership strategy:

The cost leadership strategy is an attempt to produce goods or services with features that are acceptable to customers at a lower cost relative to that of competitors. Firms using this strategy commonly sell standardized goods or services to the industry’s cost-sensitive customers.

Cost leaders concentrate on finding ways to lower their costs relative to competitors. For this, they constantly rethink the activities to reduce costs maintaining competitive levels of differentiation.

2.Differentiation strategy:

The differentiation strategy is an attempt to produce goods or services (at an acceptable cost) that customers perceive as being different. Unlike most leaders, differentiators target customers for whom value is created in such a way that the firm’s products differ from the competitors. Hence, product innovation is critical for the differentiation strategy. Firms must be able to produce differentiated products at competitive costs. When the cost is not competitive, the target customers may not be able to pay. If the firm knows what features its target customer value, it can create necessary features on the product. The customers will pay a premium price for the differentiation and the company can earn above-average returns. Under a differentiation strategy, a firm produces non-standardized products for customers who are quality-sensitive, not the price.

3.Focus strategy:

The focus strategy is an attempt to produce goods or services that serve the needs of a particular competitive segment. Thus, firms adopt this strategy when they utilize their core competencies to serve the needs of a particular industry segment or a different segment of a product line, and a different geographic market. Through a focus strategy, firms can gain a competitive advantage in specific market niches or segments even though they do not possess an industry-wide competitive advantage.

Focus strategy intends to serve a particular segment of an industry more effectively than the competitors do. Companies with a focus strategy get success when they understand the unique needs of the segment and the competitors choose not to serve that segment. There are two types of focus strategies.

• Focus low cost: It focuses on a particular segment with lower cost than the competitors. Cost advantage is sought in a particular market.
• Focus differentiation: Focus differentiation attempts to serve a particular market with unique products and services.

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