Business Strategies

Firms are usually segmented into three levels: the corporate level, the business level and the functional level. All these three levels come up with different corresponding strategies.

Here, at the moment, we are concerned with the business level strategies. A business level strategy is one that is concerned with the competitive position of a business unit. How a business unit gains competitive advantage? How it differentiates itself from others? How does it become low cost producer? Or how does it become a master at a particular niche? Answers to all these questions are addressed by business strategies.

World’s famous management Guru Michal porter suggested three strategies for strategic thinking to compete in the market and become a market leader. 

Overall cost leadership

This strategy involves capturing the large market share by providing lower cost product with least production and distribution cost. So the product that is offered is a quality product at a low cost as compared to competitors.

Companies achieve this cost leadership by doing mass production and by achieving economies of scale. Thus product is a homogenous with very little or no level of customization.

Consider for example, Southwest airlines, achieve overall cost leadership by offering minimized services. They offer no meals, standardized services, short air trips, less busy airports and short time to get onboard. All these actions lead to reduced costs which are reflected in reduced charges to customers.

Differentiation strategy

Companies try to differentiate themselves by offering values to the customers. Companies differentiate themselves through quality, technology, style, and so many other ways to become a market leader.

So the product offered is not standardized, instead a customized one. As a result charges are higher with higher level of satisfaction. Here no mass production is done.

Consider for example, the Porsche motors. At their website you can customize your own car. You can choose the color, interior, tires and much more just by using your computer. Try different combinations and ultimately customize your own car. However, this customization leads to higher prices charged to the customers.

Focus strategy

While overall cost leadership and differentiation strategies concentrate on larger segment of the market, the focus strategy focuses on smaller, unserved segment of the market. That is why it is also called niche strategy.

Examples of business following niche strategies are Blackberry as they are targeting professionals only, Mercedes is targeting Executives and Burj Al Arab Dubai are focusing on elites etc.

Authors: Naveed Ahmed, Raja Ahmed Jamil