What do your customers think about your business? What niche area have you carved out for yourself, and where do you stand in relation to the other options in your niche?
Your answers to these questions will depend on the business-level strategy that you have adopted. It sounds like a fancy phrase, but at some level, every business will make decisions on how to apply these strategies to their products or services and even financing.
Let’s think, for example, about the smartphone market. Apple is renowned for offering the most expensive devices of the highest possible quality, while manufacturers like OnePlus and Huawei produce devices that attempt to blend together price and functionality.
Each business is vying for a different part of the market to stand out from the competition and win their share of the profits. But how exactly do those businesses achieve this, and how can business-level strategies be better understood?
In this post, we will explore what business-level strategies are, the key strategies out there, and how they can be applied to your business.
What Are Business-Level Strategies?
Put simply, business-level strategies are actions that a business can take to provide value to their customers and gain a competitive advantage over their competitors.
Michael Porter is a professor at Harvard Business School, and he is widely regarded as a leading authority of matters of corporate strategy. In his work, Porter has outlined how there are three key types of business-level strategy that organizations can pursue.
These three strategies are defined as Focus, Differentiation, and Cost Leadership. Here is a closer look at each of those in turn to give you a more detailed idea of each.
Cost Leadership
This business-level strategy refers to those attempts made by businesses to cut costs and offer prices to customers that are below the industry average. Businesses can achieve this using a range of techniques, such as developing close ties with suppliers and developing new products.
By passing those savings along to their customers, those businesses are able to increase their profit margins and secure a unique position within the market. Think, for example, of those companies like OnePlus which offer prices far below those of competitors.
Differentiation
Some businesses aim to win market share and defend their higher prices by powering-up their offering with unique features that please their customers. Think of Apple, for example. It’s premium products come at premium prices, but it is consistently seen as offering the best possible features.
Focus
Many businesses try to beat larger competitors by offering an unparalleled level of focus when it comes to both Cost Leadership and Differentiation. Smaller businesses are often able to achieve levels of focus that cannot be matched by larger and more inflexible players.
Choosing Which Strategy Is Right For Your Business
Where does your business stand, and which business-level strategy should you adopt? This all depends on the research that you have conducted, what your customers value, and what your business is actually capable of.
You can explore these two areas in more detail by asking these two questions:
– What do your customers value the most? Cost savings, product quality, or brand prestige?
– Does your business have the resources and capacities to pursue the best cost/quality?
How To Apply Business-Level Strategies and Avoid Risk
Here’s a closer look at how you can work to apply each of those business-level strategies while avoiding the risks that are associated with each of them. Let’s begin with the cost leadership strategy.
Cost Leadership Strategy
In order to differentiate your business and make it a cost leader, you’ll need to do everything that you can to lower costs and keep them far below those of your competitors. Here are just some of the methods that your business can use to reduce costs:
– Build state-of-the-art manufacturing facilities which can help you to boost both efficiency and productivity.
– Maintain a very tight level of control over both product and overhead costs to push down prices and the cost of production.
– Minimize the cost of sales, research, and development as much as possible. Ensure that every department in your business operates in a lean manner.
Companies like OnePlus and Huawei are capable of offering very attractive prices thanks to an unwavering commitment to their cost leadership strategy. They achieve these low prices by sourcing their products from cheap competitors and limiting the amount of money that they spend on activities such as marketing and sales.
The manufacturing facilities are also located in places that make business cheaper, while their manufacturing processes have been built from the ground-up to reinvent the wheel and do things in new ways.
The big risk in terms of cost leadership is that your competitors will simply emulate your strategies and that your cost-saving techniques are not unique to your business. Circumstances can also change, too, meaning that your strategies may become more expensive over time.
Differentiation Strategy
The specific way that you differentiate your product or service will depend largely, of course, on the niche that you are operating within. You could make sure that your product or service is superior in terms of the features and functionality that it offers, as well as its durability, reliability, and support.
A strong differentiation strategy relies upon effective sales and marketing, and the ability to articulate and evidence the value of your product or service. You will, of course, have to conduct sophisticated and extensive competitor research and understand the landscape that you are operating within.
Let’s think about Apple. The company does a wonderful job of articulating its many strengths and building hype around its products. The average consumer perceives Apple products to be of a much higher value when compared to its competitors. Amazing marketing and advertising helps in this area.
There are risks with differentiation too, though. You may find that once your product or service has been released, your competitors will be quick to follow and you will lose any qualities that made you different in the past.
To avoid this risk, it’s important that businesses maintain an agile approach to product and service development. This will ensure that the business stays on top and constantly ahead of its various competitors that exist within the market.
Focus Strategy
Does it make sense for your business to target a particular market? If you are able to get a sophisticated and unparalleled understanding of a market and its dynamics, you will find that you have a strong advantage when compared to your competitors.
Applying this strategy relies upon following the techniques that were outlined above, but applying them to a very narrow portion of the market. Your marketing and sales strategies must also be absolutely stellar, or you may find that you fail to identify and engage with your target audience effectively.
Think about Otterbox, for example. This company works to offer premium smartphone cases to its customers and specializes in this very distinct area. The company has never strayed from this specific area and it constantly maintains a very high level of focus on improving its offering. A lot of companies looking to pursue this business-level strategy can learn a great deal from this example.
As ever, there are some dangers and risks when using this business-level strategy. You may find that your competitors focus even more intensely upon a smaller division of your market and cannibalize your customers. You may also find that a shift within your industry means that bigger players may choose to enter your niche.
Let’s imagine, for example, that you are a company that offers a very specific SaaS service. You may find that over time, larger-scale competitors enter your niche and begin to offer a competing service.
Choosing the Correct Strategy
You may find that your business-level strategy is one of the first decisions that you make as a business. In fact, you will often find that your business idea spawns from you identifying a space within the market.
It’s important that you get this decision right. You should think about it from every possible perspective and dedicate a lot of time to thinking about it. You should also try and discuss this idea with your colleagues and other industry insiders to determine its viability.
You may also find that it makes a lot of sense to pursue a hybrid strategy. This can broaden the appeal of your product and/or service to boost your profits and help you capture as much growth as possible. Many businesses attempt this. Think, for example, about supermarket chains which offer premium products in addition to own-brand offerings.
Think Carefully
We hope that this post has helped you to think about business-level strategies in a new way. Essentially, it’s all a matter of deep thought and keen research. Once you discover your target market and what their needs are, you will be able to develop a keen business-level strategy that helps you to succeed.
