Business Level Strategy

Strategies at SBU level

Bases of competition•Price•Differentiation•Hybrid•Focus

Achieving competitive advantage•Sustainability•Hypercompetition•Collaboration•Game theory

Detailed Choices•Directions•Methods

Needs/risks1. ‘No frills’ Likely to be segment

specific2. Low price Risk of price war and

low margins; need to be price leader

Price-based Strategiese.g. Japanese automakers, Indian Pharma, etc.

Price-based Strategies•‘no frills’ strategy – combine low price, low perceived value product benefits and a focus on a price-sensitive segment

•Low price strategy – achieve a lower price than competitors while maintaining similar perceived value product benefits

•When – Commodity/ commodity-like, price-sensitive customers, high buyer power and/or low switching costs, small no. of providers with similar market shares, to avoid major competitors

•Pitfalls – margin reduction, inability to reinvest, useless without a low-cost base

Needs/risks3. Hybrid Low cost base and

reinvestment in low price and differentiation

4. Differentiation a) without price premium

Perceived value added by user, yielding market share benefit

b) with price premium

Perceived value added sufficient to bear price premium

5. Focused differentiation

Perceived value added to a particular segment, warranting price premium

Differentiation-based Strategies

Differentiation (Route 4)

•Differentiation strategy – Provide products benefits that are different form those of competitors and that are widely valued by buyers

•Implications – who is the strategic customer? What is valued? Who are the competitors?

Hybrid strategy (Route 3)

•Hybrid strategy – simultaneously achieve differentiation and a price lower than competitors

•Implications – Better margins if the greater volumes can be achieved than competitors; clarity on activities on which differentiation can be built; May prove to be beneficial when entering new markets with established competitors•E.g. IKEA

Focused differentiation (route 5)

• – provide high perceived product benefits justifying a substantial price premium (usually in a niche)

•Issues – How to grow further?; Difficult when adopted as only part of an firm’s overall strategy; may conflict with stakeholder expectations; potential risks (niche vanishes, segments blurred, etc.)•E.g. Harley-Davidson

Needs/risks6. Increased price/standard value

Higher margins if competitors do not follow; risk of losing market share

7. Increased price/low value

Only feasible in monopoly situation

8. Low value/standard price

Loss of market share

Strategies destined to fail

Failure Strategies (route 6, 7 and 8)

• – does not provide perceived value-for-money in terms of product features, price or both

•In addition, firms may get ‘stuck in the middle’ leading to failure

Sustaining Competitive Advantage

Sustaining Competitive Advantage

Price-based Strategies•Accept reduced margin•Win a price war•Reduce costs•Focus on specific segments

Differentiation•Create difficulties of imitation•Achieve imperfect mobility (of resources/competencies)•Reinvest margin

Lock in•Achieve size/market dominance•First-mover advantage•Reinforcement•Rigorous enforcement

Price-based Strategies•Accept reduced margins – sell more volume/ cross-subsidize that business unit from elsewhere in its portfolio. E.g. Targeting BOP•Win a price war– leverage on lower cost structure; ‘deep pockets’ to bear short- mid-term losses to drive out competitors. E.g. Wal-Mart•Innovate in reducing costs – leverage specific capabilities to drive down costs across the value chain; e.g. Airtel•Focusing on market segment – single minded focus

Differentiation-based Strategies

•Create difficulties of imitation - transferability, preferred access, situation dependent, sunk costs•Imperfect mobility– can the resources/ capabilities be traded? Intangible assets (brand/reputation), Switching costs, Co-specialization•Reinvest margin– Imp. to achieve and sustain lower cost position

Lock-in

•Lock-in- when a firm achieves a proprietary position in its industry; becomes an industry standard. E.g. Microsoft•Dependent on– size or market dominance, first mover advantage, self-reinforcing, rigorous enforcement

Competitive Strategy in Hypercompetitive Conditions

Hoarding of Jet Airways in a Busy Road in Mumbai

What Happened Next…

A Few Days Latter…

And Finally …

Competitive strategies

Overcoming competitors’ barriers•Shorter life cycles•Undermine strongholds•Counter ‘Deep pocket’ advantages

Competing successfully•Pre-empt competition (new strategies)•Do not attack competitors’ weaknesses•Disrupt the market•Be unpredictable•Mislead competitors•A series of smaller moves

Overcoming competitors’ market-based moves•Block first mover advantages•Imitate product/market moves

Repositioning

RepositioningE.g. Position 5 to position 4

Overcoming competitors’ market-based moves

•Block first mover advantages (e.g. leapfrog, attack a particular segment, start with ‘no frills’ strategy)

•Imitate product/market moves

Overcoming competitors’ barriers•Shorter life cycles (e.g. for markets where technology advances are rapid)•Undermine strongholds (e.g. very different business models, e-business, etc.)•Counter ‘Deep pocket’ advantages` (e.g. avoid direct competition, build alliances)

Competing successfully•Pre-empt competition (new strategies) e.g. Sony•Do not attack competitors’ weaknesses•Disrupt the market, e.g. Apple•Be unpredictable•Mislead competitors•A series of smaller moves

Competition & Collaboration

Organizational Field- a community of organizations that partake of a common meaning

system and whose participants interact more frequently with one another than with those outside the field

•E.g. Silicon valley

Competition &

Collaboration

Stakeholder expectations

Increased buying power

Decreased risk of substitution

Increased selling power

Increased barrier to entry

Shared work with customers

Entry to New Markets

Increased selling powere.g. Working closely with the client…Intel works closely with OEMs

To increase buying powere.g. Working closely with Suppliers….Offering some suppliers preferred supplier status…. Many OEM use this strategy… e.g. Dell

To build barriers to entry or avoid substitutione.g. Industry bodies/trade associations are formed …. Coffee … tea

To gain entry and competitive powere.g. Joint ventures are formed…. For venturing into new/international markets

To share work with customerse.g. P&G’s co-creation with customersIn 2010, Harley-Davidson started ‘Crowdsourcing’ for Marketing and product ideas

PPPe.g. Lifebuoy Swasthya Chetna with Government of India, for selling soup to rural/low income populationMCX’s Gramin Suvidha Kendra – PPP with India Post