Question

·        Evaluate potential business level strategies for the organization.

• What are the four generic business level strategies
• What are the benefits to using each of those strategies?
• What are the drawbacks to each strategy?
• Would each strategy (by type) be appropriate for your company? Why or why not?

Answer 1

The use of the correct business strategy can enable the firm to compete effectively in a particular business environment. The following are the four generic business level strategies:

1. Cost leadership

This strategy focusses on cost reduction. Through this strategy, a firm can reduce its costs which may result in increased profitability. Market share can be increased by achieving cost leadership. In addition, it has the potential to generate more capital for future growth.

On the negative side, product innovation can be impacted since fewer resources are likely to be spent on research and development. The strategy may fail if sales are inadequate. Moreover, this strategy cannot be adopted for all products and services. It may also result in managers cutting funds to critical operations.

2. Product differentiation

Through this strategy, a firm highlights the unique benefits and features of its products that make it different from its competitors. The strategy creates additional value and increases customer loyalty. A firm is able to compete more effectively in the market place.

A major disadvantage of this strategy is that revenues are not guaranteed, especially if the products are priced much higher than the competition. Moreover, this can put enormous strain on certain business operations as they are under tremendous strain to innovate and improve.

3. Focused cost leadership

Through this strategy, a firm caters to niche market and competes mainly on price. Firms can benefit from high profits due to their low cost structure. They can develop expertise about the products and services which can limit entry of new competitors.

A major disadvantage is that since the product is niche, its demand may be volatile. Demand may be impacted during an economic downturn. The uniqueness of the product may also disappear over time.

4. Focused differentiation

Focused differentiation allows a firm to cater to a niche market by offering unique features. Firms adopting this strategy can charge a higher premium for its products. However, demand for specialized goods may be limited. The exclusivity may also not last forever.

My business is involved in the selling and installation of specialized windows for skyscrapers. Focussed cost leadership may be the most appropriate strategy for my company. I cater to a niche market and involve competing mainly on price.