About 50% of businesses fail in the first 5 years- why? Just because they ignored the business-level strategy in the beginning.
Or,
They could not plan on why their products should survive in their competing market.
“Strategy is not about adding more and more stuff. The strategy is about taking stuff away.
Taking away everything, until there’s only one thing left. One single powerful thought” said Dave Trott.
Any business will have its own strategy to counter its rivals and scale high. We bring in you five business-level strategy widely accepted across all the firms
1. Cost Leadership
The first thing that any consumer will do before buying a product or service compares the costs with different companies
So every organization will fight to fix their price as low as possible so that they can get a maximum turnout of customers.
According to cost leadership strategy – the price that is set by you should be low and should be verified if it can sustain your company and give very good profits.
Continuous efforts should be put to lower the costs so that you can outperform your competitors
You can lower the cost by keeping an eye on expenditure on
- Sales
- Marketing
- Production
- Research
- Overhead
- Inventory management
- Machine service
- Logistics
You have to find unique ways to cut the cost. For example, imagine you are the owner of a hardware company. You need to make 2000 bolts that are to be supplied to your customer.
Option A: Produce in your factory. This will include raw material cost, labor cost, inventory cost, and machinery cost.
Option B: Outsource from a company and give it to your customer. This will include product cost and logistics cost.
Both Option A and Option B are two different supply chains: a system of everything which performs from production to distribution.
In Option A, there is less cost but more time while in option B there is more cost but less time. You need to do cost and profit analysis and see which can satisfy your demands.
Porter’s five forces analysis
Porter’s Five Forces Framework is a method for analyzing the competition of a business.
Also, these five forces include three forces from ‘horizontal’ competition
- Fear of substitute products or services – High since people prefer the lower cost
- Uncertainty of established rivals – always high
- The threat of new entrants – low since consumers will prefer your well-established product and two others from ‘vertical’ competition.
- The bargaining power of suppliers – could be high since the product cost is low
- The bargaining power of customers – low since the product is of low cost
Amazon is an example of a business using this strategy. It focuses on attracting a large audience by keeping its price comparatively lower than other markets. They do so because they don’t have any physical stores and their margins are hence high.
2. Differentiation
According to this business-level strategy you try to provide value to the customers through unique features and characteristics of your products and service rather than the cost factor.
This is done by –
- High-quality products/services
- Good customer service
- Innovation and technological upgrades
Porter’s five forces analysis
- Risks of substitute products or services – Low since people prefer quality
- A warning sign of established rivals – always high
- Fear of new entrants – low since consumers will prefer your well – established product
- The bargaining power of suppliers – could be low since the product cost is high
- The bargaining power of customers – high since the product is of high cost
Apple is one of the companies which uses the above principle. They set an example by outperforming all the other computer and mobile phone industries by their unique innovation and technology. Even though the price is high, people tend to buy. As of 2019, they have 26,017.4 crores USD revenue.
3. Focused Low Cost
According to this strategy, organizations select a small segment that they would like to target. This could be a particular place or particular things.
Porter’s five forces analysis
- The threat of substitute products or services – High since the audience is low
- Fear of established rivals – low
- The threat of new entrants – low since consumers will prefer your well – established product
- The bargaining power of suppliers – low since the product cost is high
- The bargaining power of customers – low since the supply is low
ID Fresh Food was established with the capital of Rs. 50000 by Mustafa. The company has supplied ten packets of one-kilogram batter to 20 stores in Bangalore under the brand name ‘ID’(Idly, Dosa) – operating from a 550 square feet space with two grinders, a mixer, and a sealing machine.
In 2016, ID Fresh foods manufacture around 50,000 kg of batter daily from their units across the country and one in Dubai, which converts into a million idlis.
The company has achieved a turnover of Rs 100 crore in 2015-16. The company expects a turnover of Rs 350-400 crore in 2019-20.
4. Focused Differentiation
According to this strategy, the company selects a small segment of the market to provide goods and services based on differentiation.
Porter’s five forces analysis
- Risks of substitute products or services – Low since there is uniqueness in product
- The threat of established rivals – low
- Fear of new entrants – high since your products are not economically feasible
- The bargaining power of suppliers – low since the product cost is high
- The bargaining power of customers – low since the quality is superior
Rolls Royce cars is an example of a company using a focused differentiation strategy.
The cars that they manufacture are known for their quality and engineering excellence. Their price is premium and is focused on only a small subset of the world’s population.
They don’t even market and advertise their car.
5. Using an Integrated Low-Cost/Differentiation Strategy
This business-level strategy has been currently implemented due to high competition globally. These companies will be able to
- Adapt to environmental changes
- Learning new skills and technology
- Adapt according to the trends and needs of the consumers
- Focus on quality, cost, and brand recognition
Porter’s five forces analysis
- Risks of substitute products or services – Low since there is uniqueness in product
- Threats of established rivals – low
- Fear of new entrants – low since your products are of good quality
- The bargaining power of suppliers – low since the supply is high
- The bargaining power of customers – low since the quality is superior
Southwest Airlines provides cost leadership by:
- Using only Boeing 737
- Using cheaper airports
- Not providing meals to the passengers
It provides a level of differentiation by:
- Focusing on customer satisfaction
- Trying to make the experience of flying fun
At present Using an Integrated Low-Cost/Differentiation Strategy is the need of the hour and those who will be able to master the skill in this strategy will outperform others, scale high and win in the competition.
Also, read this article before you start your online business – 10 BUSINESS STRATEGIES
