BUSINESS LEVEL
STRATEGY
DR. RAJINDER SHRIRAM AURORAPROFESSOR – CONTROL SYSTEMS
AND STRATEGY
Competitive Advantage
Differentiation
Cost Leadership
Quick Response
Differentiation
Firms attempt to create unique bundles of products and /
or services that will be highly
valued by customers
Firm Infrastructure
Human Resource ManagementTechnology Development
Procurement
Inb
ou
nd
Log
isti
cs
Op
era
tion
s
Ou
tbou
nd
Log
isti
cs
Mark
eti
ng
an
d S
ale
s
Serv
ices
Extensive database on consumers suggests more effective advertising – Celebrity advertising used
Incentive and training programs encourage high qualityProduct and produce better service representatives
Cutting edge product features and patented production gives superior quality products and helps outperform competitors
Purchase of branded components raises finished product image supplemented by effective media space.
Margin
Margin
Superi
or
mate
rial im
pro
ve
qualit
y o
f finis
hed p
roduct
Low
defe
cts
incr
ease
cu
stom
er
sati
sfact
ion a
nd
pro
duct
speci
fica
tions
Impro
ves
perf
orm
ance
JIT m
inim
izes
dow
n t
ime
And b
ett
er
ship
pin
g
min
imiz
es
dam
ages
Eff
ect
ive a
dvert
isin
g
Build
s im
age a
nd s
uperi
or
Sale
s data
aid
cust
om
er
sele
ctio
n
Court
eous
tech
nic
ians
build
rapport
wit
h
cu
stom
ers
and
r
epla
cem
ent
e
nsu
res
p
roduct
qualit
y
Attributes that Differentiate
Products Physical characteristics of
product features: Philips TV After sales service: Whirlpool Desirable Image: Fashion
product Technological Innovation Reputation Manufacturing consistency Status Symbol
Implications of Differentiation
Strategy Competitive rivalry lessens
with successful differentiation
Brand loyal customers are less price sensitive
New entrants forced to overcome barriers of brand loyalty
Risks associated with Differentiated
Strategy Several competitors
pursuing the same strategy may be perceived equals
Specialists operating in niche markets more successful at differentiation
Attempts to stay a step ahead of the competition may result in “gold plating”
Cost Leadership Achieving low cost position in
relation to competitor's
Involves offering no-frills / standardized product aimed at large target market.
Is a relative term – involves cost relative to benefits and cost relative to competitor’s cost.
How Firms achieve Cost Leadership?Firm InfrastructureHuman Resource Management
Technology Development
Procurement
Inb
ou
nd
Log
isti
cs
Op
era
tion
s
Ou
tbou
nd
Log
isti
cs
Mark
eti
ng
an
d S
ale
s
Serv
ices
• Flatter Organizations• Simplified Information System
• Process breakthrough lowers production costs• Product reformulation allows use of cheaper ingredients
• Healthy employee policies minimize turnover• Training employees reduces waste and scrap
• Global purchasing resulting in low cost components from offshore• Real Estate purchases in rural areas .
Margin
Margin
• L
ong t
erm
rela
tionsh
ip
w
ith v
endors
resu
lts
in
p
ass
ing c
ost
savin
gs
• E
conom
ies
of
scale
• E
xperi
enci
ng e
ffect
s r
ais
e e
ffici
ency
over
t
ime
• C
om
pute
rize
d R
outi
ng
• S
hip
pin
g in b
ulk
low
ers
cost
• N
ati
onal advert
isin
g leads
to e
conom
ies
o
f sc
ale
in b
uyin
g
m
edia
tim
e• E
xpert
serv
ice
t
ech
nic
ians
repair
pro
duct
rig
ht
firs
t ti
me a
void
ing
e
xpense
s of
fo
llow
-up
c
alls
How Cost Leadership addresses Competitive Forces? Prevents rivals from indulging into
price war Limited pressure from customers to
lower prices further Higher margins improve position to
withstand increase in cost by vendors
New entrants find it difficult to compete due to lack of experience
Facilitates competition with substitute products
Risk associated with Cost Leadership
Strategy Undesirable for second most
competitive firm Leads to desirable product
attributes getting eliminated Strategy can be duplicated
by competitors Limits firm’s abilities to
remain competitive
Quick Response Cost leadership and
differentiation lead to a situation “atarimae hinshitsu” – value taken for granted
Race for determining new competitive advantage started
Focus shifted to Response Time
Quick Response
Quick Response refers to the speed with which a new
product, product improvement or
a managerial decision can be made
Research shows that slow response to customer’s needs forces them to look for alternatives
Firm InfrastructureHuman Resource Management
Technology Development
Procurement
Inbou
nd
Logis
tics
Ope
ration
s
Out
boun
d
Logi
stic
sM
arke
ting
and
Sale
sSe
rvic
es
• Faster adjustments to trends due to Top Mngt.• Timely data available due to MIS
• New products developed due to Product Development • New process invention reduces production time
• Well executed training programs resulting in productive workers
• Work with suppliers ensures each incorporates latest technological advances
Margin
Margin
Ware
house
loca
tion
min
imiz
es
ship
pin
g d
ela
ys
•Q
uic
k adju
stm
ent
to
n
ew
ord
ers
•Pro
duct
ion layout
r
educe
s pla
nt
traffi
c
• JIT
reduce
s dow
n t
ime
• A
ttra
cts
new
cust
om
ers
• E
ffect
ive m
annin
g o
f o
rders
•Q
uic
k re
solu
tion o
f cu
stom
er
queri
es
• S
erv
ice T
ech
nic
ians
g
uara
nte
e 2
4 h
our
re
sponse
tim
e
How Firms achieve Quick Response?
Competitive Advantage through
Quick Response Development of new products Products Customization Improving existing products Timely delivery of ordered
products Quick adjustment of marketing
efforts Answering customers queries
Quick response time vis-à-vis Five Forces Firms can avoid head-to-head
rivalry Firms can charge premium
price Encourage quick response
from suppliers Greater flexibility in dealing
with new entrants and substitute products
Quick Response – A strategy not always
beneficial Lack of systems that facilitate
competition on response time Speed not important to all
customers Can create stress Speed for the sake of speed
does not lead to competitive advantage – value addition prime
Higher Market Share
Greater Relative Sales
Lower Relative Prices
Lower Relative Costs
Higher Relative Sales Volume
Higher RelativeProduction Volume
More Rapid Gains In Experience
Faster Progress Down the Experience Curve
The Cycle of Experience Effects
Competitive Advantage across Market Life Cycle
Introduction:
First Mover Advantage
Strong Brand Recognition
Strong Differentiation Advantage
Growth:
Associated with glamour and success
Demand grows faster than supply
Reasons: Less price pressure, exciting technological development, increasing sales volume
Assumptions made during Growth Growth is easy to achieve
Less price pressure in growth markets
Development of critical expertise easier in growth markets
Maturity:
Lack of continuous growth
Key technology benefits disappear
Cumulative experience fails to provide benefits
Growing trend to compete on the basis of price
Why are price wars detrimental? Profits are price sensitive
Advantages are short lived
Future expectations increase
Customers shop for low prices rather than value and benefits
Practices followed to avoid Price Wars
Avoiding strategies that force competitors to respond with lower prices
Avoiding all possible misreading of competition
Avoiding overreacting to competitor’s price cuts
Using jawboning Repositioning your product from
a commodity to a differentiated position
Decline:
Adopt “milking” Strategies include:
* Divestment* Harvest* Niche* Leadership