What is Business Level Strategy? Definition, Types, Examples
Tactical and strategic planning is crucial to the success of your business model. Every company needs it to experience real growth across all key areas and to be prepared for different business cycles. Discover and integrate modern business tactics into its corporate strategy.
Incorporating a business-level strategy, the middle layer in the overall strategy hierarchy, enhances the productivity of your company’s department. It leads to market expansion and better use of business resources.
This guide will cover the A-Z of business-level strategy, including how to implement a business-level strategy.
What is a Business Level Strategy?
The primary business level strategy definition is the strategic planning and implementation processes incorporated by successful businesses in their niche market.
Your choice of business-level strategy is configured to gain a competitive advantage, improve customer satisfaction, and maintain above-average returns.
Most organizations that operate one business often combine their business-level strategy with the corporate-level system to devise a single level of the process.
An effective business-level strategy adequately defines a business's goals and policy standpoint to deliver customer value and gain a tremendous competitive advantage over competitors by using the business's core competencies.
Adopting the right business strategy for your business cannot be overemphasized. It determines the company's direction, defines how it serves its customers, and helps the company establish its brand.
A business can have a corporate-level strategy, a business-level strategy, or a functional-level strategy, depending on the business's organizational structure. In an organization having multiple business units, each unit is a strategic business unit (SBU).
Creating a business-level strategy is the best way to bridge the gap between your hyper-specific functional strategy and the more general corporate strategy.
The main difference between business and corporate level strategies is that the former is more focused.
Compared to the corporate strategy level, business-level strategists can develop a more detailed and accurate description of their customers than at the corporate strategy level.
Types of Business Level Strategies
There is no best generic strategy for your business. The best business strategy for you depends on two factors: your customers and competitors.
Although you can incorporate different business-level strategies into your business to give it the needed competitive advantage, some of them stand out.
Here are the main business-level strategies available for you to choose from.
1. Cost-Leadership Business Level Strategy
A cost-leadership business strategy allows businesses to increase their overall efficiency by reducing operational costs. It will enable companies to charge lower prices for their products than their competitors.
With consumers being more aware of their choices than ever before and constantly looking to increase their purchasing power, the onus is on you to use an effective price strategy that distinguishes you in the market and can not be turned down.
There are two main cost-leadership business-level strategy types: broad cost leadership and focused cost leadership. What differentiates them is that the broad cost leadership’s competitive scope is broad in target, while that of focused cost leadership is narrow and focused.
Cost leadership strategy is best suited for businesses capable of lowering their operational costs low enough to post profit margins while outpricing their competition. Businesses offering a lower price than their competitors can use this strategy.
|Cost leadership business strategy requires large sales volume and capital for success
|Experience market domination over time
|Risk cutting costs in areas that negatively affect the business
|Improved business stability
|Broad market firms with stronger financial might can target your niche
2. Differentiation Business Level Strategy
A differentiation strategy provides a product or service with differentiated features compared to competitors.
Differentiation strategy is characterized by innovation. You must conduct extensive market research, identify exploitable gaps in the market, and tailor your business to offer a product or service that bridges that gap or improves an existing product or service.
This business-level strategy is best suited for any business or industry. A wide range of companies uses it to compete for market share as long as they can identify gaps in the market that need to be filled.
|Focuses on customer loyalty by turning potential clients into loyal fans
|Some potential buyers are not covered
|Differentiation business strategy makes marketing seemingly easy
|Allows you to up your price when you create a product in high demand
3. Focused Differentiation Business Level Strategy
A focused differentiation business strategy targets a specific and narrow segment of customers. It offers them differentiated products with unique features tailored to the target customers.
The former’s focus on a very narrow segment of the market is what separates the focused differentiation business level strategy from the general differentiation strategy.
Focused differentiation is best suited for markets where understanding product comparison is critical. New businesses find competing with companies using a robust differentiation business strategy challenging.
This strategy is effective for businesses that have identified a niche in the market to tailor their products or services. Focusing on a target audience ensures new businesses can get significant demand for their products or services.
|Limits in demand can result in the growth capabilities of the business
|Ability to charge high prices
|Risk losing out to businesses that adopt a narrower business focus
|Great for building customer loyalty
4. Focused Low-Cost Business Level Strategy
The focused low-cost business strategy only focuses on a small niche of customers and comes at a lower cost than a strong strategy. It is best to tailor your focus to a particular niche for businesses that do not seem to appeal to the broader market.
By offering the lowest cost provider in your market niche, your business tends to stand out against a wide range of competitors.
A focused low-cost strategy is best suited for businesses with many competitors. Despite the low cost, they are not market strong, or only a small market segment of specific customers can generate the required revenue for your business.
|Future growth is often limited
|Increased brand affinity for your business due to your products and services’ uniqueness
|Often too specific for the market
|Opens you up to several options in a narrow market segment
5. Integrated Low Cost/Differentiation Strategy
Businesses employ an integrated low-cost or differentiation strategy with differentiated products offered to customers at a lower cost than competitors.
As a hybrid business strategy, the integrated strategy is quickly gaining ground brought about by increasing global competition.
The benefit that companies that choose this hybrid business level strategy have over those that rely on a single system is that by integrating these two business level strategies, you position yourself better to adapt to quicker environmental changes.
You can use flexible manufacturing systems to maintain superior quality in the product development process while reducing operating expenses.
This hybrid business level strategy is best suited for businesses that operate in a market niche where the buyer's needs and preferences are entirely different from the rest of the current market.
|This hybrid business-level strategy offers unique features at a low cost
|Risks of being stuck between both business strategies
|Great for gaining customer loyalty
|Requires a considerable amount of compromise and multitasking
|Runs on an adaptable business model
How to Implement a Business-Level Strategy
You need to identify and implement your business objectives in a way that will offer numerous benefits to your business to implement a business-level strategy successfully.
Apart from identifying your goals, you need to have a detailed plan to help your business achieve all of its highlighted goals.
Here is a list of steps to successfully implement a business-level strategy for your business.
1. Identify Target Market and Consumers
The first step in implementing a successful business-level strategy is identifying all relevant target markets and consumers.
Before successfully implementing the needed changes to your business organization, you need to spell out the market you are seeking to penetrate and the ideal business’s customers to which the market will likely open your business.
Consider your competitors that have already experienced significant success in that same market you are about to venture in, their average pricing, the target market, and customers that patronize their products and services.
2. Find Out the Needs of Your Identified Market
Your competitor's sales should closely guide the needs of your customer base. You need to identify your customer's particular needs and then relate them to the products and services you hope to offer.
Consider the price standpoint of your customer and build your product price around the average price a large majority of your customer base can afford.
3. Find Effective Ways of Catering to Your Customer's Needs
Figure out ways to address your highlighted needs. You need to go back to the table with your company executives and build strategies, including where to seek vendors, getting your products to the desired target, and making them within reach of your customers.
Pick a fair price for your product or service that is favorable to the business and your customer base, as you already have established competitors.
4. Compare Your Business Level Strategies with Competitor's Strategies
Considered the business level strategy your competitors employ that still enables them to post massive profit margins.
Most businesses use cost savings as an effective business-level strategy to return large sums of profits and build brand loyalty.
This strategy is of great help if you are looking for how your competitors' business model is geared at improving and adapting to evolving changes in the narrow market segment.
5. Set Common Goals with the Company's Goals
Your goals must be met by all stakeholders of the company and the company as a whole.
Devise a plan for company-wide goals that positions you to consolidate and strengthen your potential within the market. Your business should leverage core competencies to create value that satisfies customers.
Business goals should be specific and should be attainable. You are in constant competition; your goals must be geared towards that solid fact. Successful businesses use the SMART goal framework to set their business and financial goals.
6. Set Unique Goals for your Departments
Individual department goals help the business better segment responsibilities that play a massive role in ensuring the success of the overall company's goals.
Constant communication must be maintained among all quarters of your organization, especially between the corporate level and the employees, to generate the result required and translate into the success of department-assigned tasks.
7. Complete Routine Checks at Each Company Level
Schedule monthly checks that help track your level of progress and ensure you are not diverting from the organization's set goals and objectives.
Your monthly review is done on the corporate level to give room for relevant information to be disseminated down the corporate ladder from department heads to individual department members.
Examples of Business Level Strategies
A breakdown of business-level strategy examples and their application is a good way of understanding how business-level strategy differs from other strategy levels.
The ideal business-level strategy is the one that helps reduce costs and increase return on investment (ROI).
Popular business-level strategy examples to aid your understanding include
1. Cost Leadership
An example of business-level strategy businesses employs under cost leadership is offering a product or service at the lowest cost attainable to competitors to gain a considerable market share.
Businesses strive for cost reduction by improving or constructing new and adequate facilities, investing in tools and equipment, and reducing the overhead and administrative expenses of the company.
Cost leaders are companies that are the cheapest manufacturers of a product and providers of a service.
One common misconception about this strategy is that profit margins are lower. You can use rigid cost controls and better facilities for mass-producing products at scale to drive costs and increase your profit margins.
With a focused cost leadership strategy, businesses compete on price with their competitors but focus on a niche market. This strategy helps you better understand your customers’ needs and serve them better.
In the case of differentiation, instead of reducing the business operational cost and diverting the money saved to customers, differentiation strategies focus on developing and marketing products to offer customers the most significant value.
There are two forms of differentiation strategy: broad and focused differentiation strategies. What differentiates them is that a broad differentiation strategy focuses on a vast range of customers while a focused differentiation strategy focuses on a smaller number of customers.
The Apple brand, which has created a niche in the smartphone market, is a perfect example. Apple invested heavily in customer service, research and development, and marketing, allowing it to charge a premium price without affecting its market share.
3. Focused Low Cost
Apart from reducing costs from their operations, businesses decide to tailor and divert all their focus and attention to a particular market subset for maximal value as their business-level strategy.
Consider a business that produces and sells manufacturing tools. This business can focus its tool manufacturing strictly on the professional tradesperson market.
4. Focused Differentiation Strategy
This business-level strategy involves a business choosing to differentiate itself from its competitors while focusing a large chunk of its efforts on a smaller subset of its customer market.
The idea behind a focused strategy is that with a smaller target market comes the ability to better understand the business customer base and their needs and successfully deliver the value the customers need.
An example of the focused differentiation strategy is the automobile company Rolls Royce which focuses on offering premium-priced cars for a sub-niche of the global car market.
5. Integrated Low Cost/Differentiation
A hybrid strategy that combines low-cost and differentiation techniques is the most effective approach for several businesses.
The premium fast food restaurant industry is a business venture that utilizes the integrated low-cost/ differentiation strategy to near perfection.
They offer low prices that characterize established food chains and a differentiated range of offerings that take them a step higher than most fast food chains.