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Business-Level Strategy

Essay by   •  November 25, 2010  •  1,261 Words (6 Pages)  •  3,045 Views

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A business-level strategy is an integrated and coordinated set of commitments and actions that firms use to gain a competitive advantage by exploiting core competencies in specific product market. Only firms that continuously upgrade their competitive advantages over time are able to achieve long-term success with their business-level strategy.

Effective management of customer relationships help the firms answer questions related to the issues of who, what, and how. Customers are the foundation or essence of an organization's business-level strategies. Who will be served, what needs have to be met, and how those needs will be satisfied are determined by the senior management. To make this decision, companies divide customers into groups based on differences in the customers' needs called market segmentation, this process clusters people with similar needs into individual and identifiable groups. This leads us to who.

WHO: Who are the customers? Demographic, geographic, lifestyle choices, personality traits, consumption patterns, industry characteristics, and organizational size. A crucial business-level strategy decision is the one made about the target customers for the firm's goods or services (who). To make this decision companies divide customers into groups based on differences in the customers' needs called market segmentation as mentioned before.

WHAT: What are the goods and services that potential customers need? Knowing ones customers is very important in obtaining and sustaining a competitive advantage. Being able to successfully predict and satisfy future customer needs is important. After the firms have decided who it will serve, it must identify the targeted customer group's needs that its goods or services can satisfy. Needs which are also considered to be what in this topic, are related to a product's benefits and features. Having close and frequent interactions with both current and potential customers helps the firms identify those individuals' and groups' current and future needs.

HOW: How to satisfy customer needs? Organizations must determine how to bundle resources and capabilities to form core competencies and then use these core competencies to satisfy customer needs by implementing value-crating strategies. Firms use core competencies which are how, to implement value-creating strategies and thereby satisfy customers' needs. Only those firms with the capacity to continuously improve, innovate, and upgrade their competencies can expect to meet and hopefully exceed customers' expectations across time.

Other than who, what, and how there are also five generic strategies that are used to help organizations establish a competitive advantage over industry rivals which are cost leadership, differentiation, focused cost leadership, focused differentiation and integrated cost leadership/differentiation. Firms may also choose to compete across a broad market or focused market.

Cost leadership: Organizations compete for a wide customer based on price. Price is based on internal efficiency in order to have a margin that will sustain above average returns and cost to the customer so that customers will purchase your product/service. Works well when product/service is standardized can have generic goods that are acceptable to many customers, and can offer the lowest price. Continuous efforts to lower costs relative to competitors are necessary in order to successfully be a cost leader. For example:

* Building state of art efficient facilities (may make it costly for competition to imitate)

* Maintain tight control over production and overhead costs

* Minimize cost of sales, R&D, and service.

A cost leadership strategy may help to remain profitable even with: rivalry, new entrants, and supplier' power, substitute products, and buys' power.

* Rivalry: competitors are likely to avoid a price war, since the low cost firm will continue to earn profits after competitors compete away their profits, for example, Airlines.

* Customers: Powerful customers that force firms to produce goods and services at lower profits may exit the market rather than earn below average profits leaving the low cost organization in a monopoly positions. Buyers then loose much of their buying power.

* Suppliers: Cost leaders are able to absorb greater price increase before it must raise price to customers.

* Entrants: Low cost leaders create barriers to market entry through its continuous focus on efficiency and reducing costs.

* Substitutes: Low cost leaders are more likely to lower costs to entice customers to stay with their product, invest to develop substitutes, purchase patents.

Differentiation: Value is provided to customers through unique features and characteristics of an organization's products rather than by the lowest price. This is done through high quality, feature, high customer service, rapid product innovation, advanced technological features, image management, etc. For example, some companies this follow this strategy are Rolex, Intel, and Ralph Lauren. Companies create value by:

* Lowering Buyers' Costs: Higher quality means

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