Question

How can a business-level strategy of (a) low cost and (b) differentiation offer some
protection against competitive forces in a company’s industry

Answer 1

Business level strategy enables a company to compete in its individual product markets. It provides best means of competing with other companies in the same industry as well as it supports corporate level strategy. Low cost and differentiation strategy are different types of business level strategy.

a) Low Cost strategy: It enables a company to produce goods & services that have features which are acceptable by customers at the lowest possible cost in comparison to its competitors. The products produced by the company must have competitive levels of quality, services & all other features & most importantly lowest overall cost. This strategy protects a company from competitive forces as the company offer its buyers deep discount prices which helps to attract customers as well as they are able to absorb cost increases from suppliers, such companies charge low prices and are able to attract large customer base & therefore, earn huge profits. Also, competitors hesitate to compete with such companies on the basis of price. The efficiency with which a company operates & produces goods & services at lowest possible cost act as a barrier to entry for other companies in the same industry.

b) Differentiation strategy: It enables a company to produce goods & services which are considered as unique or different by customers at an acceptable cost. The firm's product or service provides value to its target customers. The differentiated or unique products provides competitive advantage to the company. The company tries to differentiate its product or service from its competitors on as many features as possible. A company can make differentiated & unique products by using superior process technology, or high quality raw material inputs, etc. As the products of the company are differentiated, so, it is able to develop a customer base of loyal customers who wants unique or differentiated products. Customers are less sensitive towards price increases because of the uniqueness that product offers them. Since company's customers are brand loyal, therefore, substitute products by competitors are not able to attract company's customers. Other companies within the same industry would require significant resource investment in order to compete with company that offers unique & differentiated products & services. So, all these factors protects a company against competitive forces in a company's industry.

So, these business level strategies helps a company to gain an edge over its competitors & deal with all competitive forces like supplier power, buyer power, threat of substitutes or barriers to entry in an efficient manner & enables it to contribute efficiently & effectively towards the achievement of broader organizational goals.