Focus strategy

Lecture No . By Salman Shahid

Business Level StrategyBusiness Level Strategy

An organization strategy that seek to An organization strategy that seek to determine how an organization should determine how an organization should compete in each of its businesses compete in each of its businesses

Example Waves and Dawlance

Example Waves and Dawlance

Waves and Dawlance deep freezer

Business Level StrategyBusiness Level Strategy

Competitive advantages

Business-level strategies are intended to create Business-level strategies are intended to create differences between the firm’s position relative differences between the firm’s position relative to to those of its rivals. those of its rivals.

Business Level StrategyBusiness Level Strategy

An organization’s major value creating skills. Capabilities , and resources that determine its competitive weapons

CoreCorecompetenciescompetencies

StrategyStrategy

Business-levelBusiness-levelstrategystrategy

Core Competencies and Core Competencies and Strategy

An integrated and coordinated set of actions taken to exploit core competencies and gain a competitive advantage

Actions taken to provide value to customers and gain a competitive advantage by exploiting core competencies in specific, individual product markets

Example of Nestle water VS Aqua water

Nestle noodles VS Knorr noodles

Nestle VS Cadburys

PORTER'S FIVE FORCES

Competitive Advantage

Business Level StrategyBusiness Level Strategy

Competitive Advantage Low-cost Differentiation

CompetitiveScope

Broad Target

Narrow Target

Cost leadership Differentiation

Cost Focus Differentiation Focus

Business Level StrategiesBusiness Level StrategiesGeneric Strategy Commonly Required

Skills & ResourcesCommon OrganizationalRequirements

Overall CostLeadership

Sustained capital investment & access to capitalProcess engineering skillsIntense supervision of laborProducts designed for ease in manufacturing Low cost distribution system

Tight cost controlFrequent detailed control reportsStructured Firm and responsibilitiesIncentives based on meeting strict quantitative targets

Differentiation Strong marketing abilitiesProduct engineeringCreative flairStrong capability in basic researchReputation for quality or technological leadership Long tradition in the industry or unique combination of skills drawn from other businessesStrong cooperation from channels

Strong coordination among functions in R&D, product development, and marketingSubjective measurement and incentives instead of quantitative measuresAmenities to attract highly skilled labor, scientists, or creative people

Focus Combination of the above policies directed at the particular strategic target

Combination of the above policies directed at the particular strategic target

Business Level StrategyBusiness Level Strategy

A business level strategy in which the organization is the lowest cost producer in its industry

Cost Leadership Strategy:

Business Level StrategyBusiness Level Strategy

Cost Leadership Strategy:

Alternative cost reduction strategies include:

• Building efficient scale facilities.• Cost reductions through experience.• Establish tight cost and overhead controls.• Cost minimization in R&D, service, and sales forces.

Requirements for usage:

• High relative market share (economies of purchasing).• Favorable access to raw materials.• Design of products towards ease of manufacturing.

Business Level StrategiesBusiness Level Strategies

Cost Leadership Strategies:

Defense against 5 competitive forces:• Competitors - Low cost position allows return after competitors have competed away their profits.

• Suppliers - Allows more flexibility to cope with input cost increases.

• Buyers - Buyers can at best force your prices down to that of the next lowest competitor (if they exit leaves firm as primary supplier).

• New-entrants - Scale economies or cost advantages usually provide substantial barriers to entry.

• Substitutes - Low cost position allows reduction in prices to maintain price/value relationship.

Differentiation strategyDifferentiation strategy

A business-level strategy in which a A business-level strategy in which a company offers unique products that are company offers unique products that are widely valued by customer.widely valued by customer.

Business Level Strategies

Business Level StrategiesBusiness Level StrategiesDifferentiation Strategy:

Goal is to provide value to customers through unique features and

characteristics of a firm’s products.

Differentiators focus or concentrate on product innovation and

developing product features that customers value. Products

generally cost more (offset cost of differentiation).

Can’t completely ignore costs.

Business Level StrategiesBusiness Level StrategiesDifferentiation Strategy:

Can differentiate based on:

• Superior quality • Customer service (IBM )• Engineering design (HP)• Unique features • Image of prestige• Package design

Requirements for usage:

• Use may require a high market share initially.• Implies a trade-off with low-cost (i.e., costs to differentiate).• Generally leads to a lower market share than in the low-cost approach.

Business Level StrategiesBusiness Level Strategies

Differentiation Strategy:

Defense against 5 competitive forces:

• Competitors - Decreases rivalry due to brand loyalty and resulting lower sensitivity to price.

• Suppliers - Allows an increase in price margins (customers willing to pay more, can withstand supplier price changes).

• Buyers - Removes buyer power due to a lack of comparative alternatives.

• New-entrants & Substitutes - Requires others to overcome customer loyalty and product uniqueness.

Business Level StrategyBusiness Level Strategy

Focus strategyFocus strategy

A business level strategy in A business level strategy in which a company pursues a cost which a company pursues a cost or differentiation advantage in a or differentiation advantage in a narrow industry segment.narrow industry segment.

Business Level StrategyBusiness Level Strategy

Focus Strategy: Firms can also use core competencies to serve a narrow

segment of the market or a particular customer group. Primary goals of a focused strategy:

• Focus on a particular buyer group, segment of the market, etc.

• To serve a narrow target or market segment more effectively than broad-based competitors can due to core competencies.

Business Level StrategiesBusiness Level Strategies

Focus Strategy:

Two primary focused strategies:

• Focused differentiation:

Requirements for usage similar to differentiation strategies.

Defense against the five forces similar to differentiation strategies.

Examples: Waves and Dawlance

- waves cool bank (prestige, quality, engineering design). - Dawlance

Business Level StrategyBusiness Level Strategy

Focus Strategies:

• Focused low-cost strategies:

Requirements for usage similar to low-cost strategies.

Defense against the five forces similar to differentiation strategies.