A business-level strategy is a plan that a company uses to achieve its goals and objectives by leveraging its strengths and mitigating its weaknesses. This strategy is focused on how a company can compete successfully in its chosen market.
Here are some key aspects of a business-level strategy:
- Target Market: Identifying the group of customers or audience that the company will target, which involves market segmentation and selection.
- Competitive Advantage: The unique value proposition the company offers its customers compared to its competitors. This could be through lower prices, superior quality, unique features, exceptional service, etc.
- Positioning: How the company presents its products or services to its target market. This can be based on price, quality, innovation, customer service, or other differentiating factors.
In practice, the best business-level strategy for a company depends on its specific circumstances, including its resources, capabilities, industry conditions, and the needs of its customers. Successful implementation of a business-level strategy requires an understanding of the market dynamics, a clear strategic vision, and effective execution.
Types of Business Level Strategy
There are mainly four types of business-level strategies as formulated by Michael Porter. These include:
- Cost Leadership Strategy: This strategy is focused on being the low-cost producer in an industry for a given level of quality. Companies that use a cost leadership strategy aim to use a scale of production, well-defined scope, and other economies as a defense against the competitive forces in their industry. They aim to increase market share by charging lower prices while making a reasonable profit on each sale because they’ve reduced costs. What is a Cost leadership strategy | Explained with Examples
- Differentiation Strategy: The differentiation strategy aims to produce unique goods and services, and this uniqueness appeals to the consumers. This can be achieved through quality, design, brand image, technology, features, customer service, etc. The uniqueness can make a higher price range possible, and the customer perceives the product or service as being superior to competitors’ offerings and worth the higher price.
- Focused Cost Leadership Strategy: This strategy involves targeting a niche group of customers and fulfilling their needs better than anyone else. The company is focused on a narrow, specific market and offers its products at lower prices than competitors. The target market has unique needs different from the broader market, and the company addresses these needs at a lower cost.
- Focused Differentiation Strategy: This strategy also involves targeting a niche group of customers. However, instead of offering lower prices, the company aims to meet the customers’ unique needs with specially tailored products or services. The differentiation could be based on higher quality, superior service, unique features or technology, or other important factors to the target customers.
Companies often use a combination of these strategies to succeed in the market. The choice of strategy depends on the company’s resources, competition, market conditions, and the target customers’ preferences.
Examples of Business Level Strategy
- Cost Leadership Strategy: Walmart is a prime example of a cost leadership strategy. Walmart’s business model is based on offering various products at low prices, made possible by highly efficient supply chain management and strong relationships with suppliers. Their strategy focuses on attracting many customers by providing products at the lowest possible prices. How does Walmart make money: Business Model & Supply Chain Strategy
- Differentiation Strategy: Apple is known for its differentiation strategy. Their products, such as the iPhone, iPad, and MacBook, are recognized for their innovative design, user-friendly interface, high quality, and superior performance. Apple products often command higher prices than similar devices from other companies because customers perceive them to be of higher value. What does Apple do | How does Apple make money | Business Model
- Focused Cost Leadership Strategy: IKEA is a good example of a focused cost leadership strategy. IKEA concentrates on a market segment of stylish, cost-conscious buyers willing to do some assembly themselves. IKEA’s business model of do-it-yourself furniture allows them to maintain lower costs than their competitors, offering lower prices.
- Focused Differentiation Strategy: Ferrari uses a focused differentiation strategy. They target a particular market segment – the high-end, luxury sports car market. They offer customers highly differentiated products known for their sleek design, high performance, and the prestige of the Ferrari brand. While their cars are very expensive, they meet their target customers’ unique needs and preferences. Ferrari’s Marketing Strategy of Maintaining Exclusivity
These examples illustrate how different companies use different business-level strategies based on their unique strengths, market conditions, and the preferences of their target customers.
Case Study of Business Level Strategy
Let’s consider Starbucks as a case study of a successful business-level strategy.
Starbucks Corporation – Differentiation Strategy
Starbucks Corporation, the world-famous chain of coffeehouses, was founded in Seattle, USA, in 1971. Today, Starbucks is in over 80 countries, with over 32,000 locations worldwide. Starbucks is well-known for its differentiation strategy.
Here’s how Starbucks’ differentiation strategy plays out:
1. High-quality Products: Starbucks is committed to offering the highest quality coffee and maintains direct relationships with nearly 300,000 farmers in coffee-growing regions worldwide. Their coffee is known for its rich, robust taste and quality.
2. Customer Experience: Starbucks aims to provide an exceptional customer experience, not just a cup of coffee. They invest in creating an inviting, comfortable atmosphere in their coffeehouses – which they refer to as the “Third Place” concept, a place between home and work where customers can relax, enjoy a cup of coffee and experience the conviviality of a Starbucks store. This focus on customer experience is a key part of their differentiation strategy.
3. Branding: Starbucks has invested significantly in building a strong, recognizable brand associated with quality, social responsibility, and an excellent customer experience. Their green mermaid logo is recognized worldwide.
4. Innovation: Starbucks continually innovates its product offerings based on changing consumer tastes. They offer various coffee flavors, tea, snacks, and other beverages like frappuccinos and lattes. They also adapt their menu to local tastes in different countries. This constant innovation is part of their differentiation strategy.
5. Social Responsibility: Starbucks emphasizes corporate social responsibility, committing to ethically sourced coffee, community service, and environmental responsibility. This strengthens their brand image and is part of their differentiation strategy.
In conclusion, Starbucks’ business-level strategy is an example of differentiation. The company has found success by offering high-quality products, exceptional customer experiences, strong branding, constant innovation, and a commitment to social responsibility, differentiating Starbucks from its competitors. This allows Starbucks to charge a premium for its products, resulting in strong financial performance.
Starbucks business model & supply chain analysis
