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  • Lorea Lastiri

6 Effective Business-Level Strategies (w/Examples)

Updated: Jun 12, 2023


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Every business needs business-level strategies to achieve a competitive advantage.

After your corporate-level strategy gives your business a direction by defining the market you will compete in, business-level strategies define how you will compete in that market.

What business-level strategies can you employ to achieve a competitive advantage?

Cost leadership, differentiation, focused low-cost, focused differentiation, integrated, and customer intimacy are effective business-level strategies for gaining a competitive advantage.

This article will explain these strategies and how to implement them. At the end of this article, you’ll be one step closer to deploying effective business-level strategies toward achieving better business outcomes.

Effective business-level strategies you can use in your business include:

1. Cost leadership strategy

Cost leadership is a business-level strategy for businesses that want to compete based on price.

The cost leadership strategy is about minimizing the cost of providing products/ services to be an industry leader in low-cost production.

Cost leadership strategies provide two benefits for businesses - higher profit margins and lower prices to consumers.

  • Lower price to consumers. Cost leadership is about the cost of production for the business and not the cost (the price of the product) for the consumers. However, it allows for an overall lower price for consumers. When your cost of production is low, you can offer your products/ services at a relatively low price and still make a good profit.

  • Higher profit margin. Profit is revenue less costs. So, reducing costs result in a higher profit margin at a given price.

Focusing on internal efficiencies helps reduce production costs toward achieving cost leadership. Common ways to achieve cost leadership include:

  • Streamline material supply chain. Since each stop in the supply chain adds a profit margin, streamlining the supply chain reduces production costs (via reducing your material cost).

  • Use rigid cost controls. Cost-cutting techniques (such as cutting direct and overhead costs, reducing waste, etc.) keep production costs low.

  • Buy in large quantities. This lets you take advantage of volume purchase discounts, keeping material costs (and production costs) down.

  • Build state-of-the-art facilities. This optimizes production and reduces production costs by minimizing waste, reducing labor costs, etc.

A good cost leadership strategy example is Amazon. Amazon keeps production costs low using different techniques, including:

  • Buy products cheaply by making high-volume purchases

  • Keep overhead costs low by not using physical stores

  • Use state-of-the-art distribution facilities

With these techniques, Amazon keeps the cost of providing products low and passes these savings on to consumers. So, it is able to offer relatively low prices while still having relatively high-profit margins.

2. Differentiation strategy

Differentiation is a business-level strategy for businesses that want to compete based on their uniqueness.

As the name suggests, differentiation strategy is about making a product different from the competition. The differentiation strategy focuses on making a product/ service stand out from the crowd by infusing it with unique features/ attributes.

Employing the differentiation strategy requires conducting extensive market research to find a gap in the market and then upgrading your product with the appropriate features so it fills the gap.

Companies employing a differentiation strategy usually charge a higher price to offset the cost of creating unique features.

Differentiation helps your business in many ways, including:

  • Raise brand awareness. Your business will be known for offering superior quality, better customer service, etc.

  • Boost brand loyalty and sales. Successful differentiation enhances customer retention efforts as target customers will stick with you knowing that you offer what they cannot get elsewhere.

  • Secure higher price points. Successful differentiation can help you price your products higher than the competition without losing market share. This is because your product’s superior uniqueness will draw people away from lower-priced alternatives.

Some ways to differentiate for business success include:

  • Improve quality. Improving durability, user experience, etc., can help your product stand out as a superior option, giving you a competitive advantage.

  • Provide unique features (product innovation). Adding valuable features absent in competitors' products can also help your product stand out.

  • Focus on social consciousness. You can also differentiate by appealing to ethical and environmental concerns. For example, being reputable as a carbon-neutral manufacturer will win you a sizeable market share.

  • Improve customer service. You can also differentiate by offering a superior support service.

Good differentiation business-level strategy examples are Apple and Tesla. The technology giants differentiate by using a combination of the following:

  • Invest heavily in R&D to design trail-blazing products.

  • Offer customers exceptional support service.

  • Appeal to people’s emotions by promoting owning its products as a sensory experience.

In Apple’s case, because of its successful differentiation strategies, people queue to buy the latest iPad or iPhone even though these products are priced higher than competitors' options.

3. Focused low-cost strategy

Focused low-cost is a business strategy for businesses that want to compete based on price but to only a small portion of the target market.

Sometimes, a business cannot afford broad cost leadership - being a cost leader in a generic market to offer multiple products to the whole market at low prices. The solution is to focus on a small portion of the market (one niche) to offer that niche the lowest cost possible.

The focused low-cost strategy is about standing out from the competition by trying to be the lowest-cost provider for a specific niche in a market.

The focused low-cost strategy is best in markets with strong competition but with a specific segment of customers capable of bringing in remarkable revenue.

The focused low-cost (also called focused cost leadership) strategy benefits your business in many ways, including:

  • Provide lower costs to a segment of consumers.

  • Allow you to compete favorably in a competitive market.

Succeeding with a focused low-cost strategy requires:

  • Analyzing the market to determine the needs of a smaller group within it that you can fill competitively.

  • Choose a niche that cost leaders in the industry neglect.

  • Reduce costs to serve the identified needs.

A great example of a focused low-cost strategy is Checkers Drive-in Restaurants. The US-based fast food company knows how competitive the fast food market is and operates on a drive-in-only basis.

By focusing on just the “drive-through” segment of the fast food market, Checkers is able to cut costs (its buildings are cheaper to build and maintain, it reduces personnel costs, etc.). The company passes the savings to the customers, offering them the lowest price possible.

4. Focused differentiation strategy

Focused differentiation is a business strategy for businesses that want to compete based on their uniqueness but to only a small portion of the target market.

The focused differentiation strategy is similar to the differentiation strategy in that the business seeks to compete by offering some uniqueness (features, service, etc.).

The point of difference is that while differentiation business strategies provide unique features to the whole market, focused differentiation strategies offer the unique features to only a small market segment.

Focused differentiation helps a business in many ways, including:

  • Help you compete favourably in a competitive market.

  • Increase brand awareness.

  • Offer higher prices within a market without losing your market share.

Ways to execute focused differentiation for business success include:

  • Analyze the market and select a segment where you can offer differentiated products/ services.

  • Focus on areas where competition is weak.

  • Choose a segment where product substitution is difficult.

An excellent example of a focused differentiation strategy is Rolls Royce. While the company is in the automobile market, it focuses on a very small subset - status cars.

To serve its status cars niche market, the company prioritizes engineering superiority and unrivalled luxury in its automobiles. Thus, it is able to charge a premium without experiencing a drop in demand.

5. Integrated strategy

The integrated strategy is for businesses that want to compete using both cost and unique attributes.

An integrated strategy is about providing differentiated products and offering these at low costs.

This business strategy is often called the hybrid strategy as it is about simultaneously focusing on two drivers of competitive advantage - cost and differentiation.

An integrated strategy is a midway strategy. This means products are usually not as differentiated as those of businesses following a strict differentiation strategy and not as low-priced as those following a cost leadership strategy.

Businesses use the integrated strategy to attract customers who want mid-priced higher-than-usual quality products that are more appealing than low-cost generic options.

The integrated strategy is one of the most popular types of business-level strategies. It benefits businesses in many ways including:

  • Adaptability. It makes it easy to adapt to environmental changes.

  • Customer loyalty. It helps you gain and retain a wide range of customers, including those wanting low prices and those favouring better quality.

However, the integrated strategy is a high-risk business-level strategy because it requires driving competitiveness from two fronts. It needs investment in reducing production costs and differentiating your products.

A good example of an integrated business-level strategy is Southwest Airlines.

It provides cost leadership by using cheaper airports, using a single aircraft model, and not providing meals. For its differentiated products, it offers flight services for business travellers and focuses on creating better experiences for customers.

6. Customer intimacy strategy

Customer intimacy strategy is a customer-centric business strategy that involves learning as much as possible about what your customers want and meeting those specific needs.

Customer intimacy strategies offer better customer satisfaction. It focuses on meeting specific customer needs, creating personalized experiences for customers, and helping them get the most out of their experiences.

Customer intimacy strategy helps a business in the following ways:

  • Increase sales. Customers are likelier to choose tailor-made products that solve specific needs over generic options.

  • Enhances client relationships. The communication to identify customer needs and how to assist tells them you put their needs first, enhancing relationships.

  • Increases customer loyalty. Customers will stick with you when you meet their specific needs and build meaningful relationships with them.

Ways to implement a customer intimacy strategy include:

  • Invest in effective customer service. Have a support team that delivers exceptional service, and ensure your non-support staff can say the right things when needed.

  • Understand your customer journey. Understanding the stages your customer goes through with a product helps you identify and address pain points.

  • Provide tailored offers. Instead of the same promotional offer across the board, customise your offers to provide more relevant services locally.

FAQs

Here are some of the most frequently asked questions about business-level strategies.

What are Porter's Generic Strategies

Porter’s generic strategies are cost leadership, differentiation, and focus - the three strategies that Harvard Professor Michael Porter described in his famous work about business strategy. He says any firm could use these strategies to approach a market and gain a competitive advantage.

The focus strategy targets a narrow segment of the target market (instead of the larger market). It splits into cost-focus and differentiation-focus, depending on whether you’ll compete in the niche market with low prices or differentiated features.

Firms stuck between cost leadership and differentiation strategies use what is now known as the integrated strategy.

Why is Business-Level Strategy important in an organization?

Every firm needs business-level strategies to create a competitive advantage.

There are three levels of business strategies. Business-level strategy is the “middle level” in the overall business strategy.

  • Corporate-level strategy sets a direction for the firm, such as identifying new markets to enter.

  • Business-level strategy identifies how the firm will compete with others in the market with its products/ services.

  • Functional-level strategy defines the everyday functions in each business unit to support the business-level strategy.

After corporate-level strategies set a direction for the company, business-level strategies are needed to steer the company in that direction.

It defines how you will use your firm’s core competencies to create customer value in a market and gain a competitive advantage. Without business-level strategies, you cannot compete with your products/ services in a market.

How to implement a Business-Level Strategy?

The steps for implementing a business-level strategy are:

  • Identify your target market and customers. Know the customers you will sell to.

  • Identify your target customers’ needs. Research the needs of your target customers. Find out what they want in the product/ service (better quality, a unique feature, low-cost products, etc.)

  • Determine how you can meet these needs. Look internally to identify how you can meet customer needs.

  • Look at what competitors are doing. Examine how your potential competitors meet customers’ needs and what strategies they use to gain a competitive advantage.

  • Set goals for the company. Outline specific strategies you will employ to gain a competitive advantage as well as expected outcomes.

  • Assign responsibilities to business units. Leverage your core competencies to make products unique or produce them at a lower cost (depending on the business strategy you adopt).

  • Measure progress. Look at sales figures and their metrics to determine whether your strategy is helping you achieve expected business outcomes.

How does the industry structure affect a Business Level Strategy?

The structure of the industry determines the competitive forces acting upon a company.

Since a business-level strategy is about gaining a competitive advantage, a business needs to consider the structure of an industry to know what forces are at play and determine what strategy will work best to help it turn a weak competitive position around. Thus, the structure of the industry guides you in deciding the best business-level strategy to improve your competitive power.

For example, in an industry with intense competition, you may adopt cost leadership to help you fight for market share with aggressive price cuts.

Can a Business Level Strategy change over time?

A business-level strategy can change over time. In fact, it should change in response to factors that threaten its competitive position.

Various factors can cause you to lose your competitive position. These include changing customer needs, competitors' activities, wrong decisions, etc. To remain competitive, your business-level strategy should reflect the dynamism of the business environment, changing as necessary.

If a new low-priced competitor threatens your market share, you may want to respond by also cutting costs or adding some uniqueness.

Takeaway: Manage business-level strategies with Kippy to gain a competitive advantage

A corporate strategy will give your business direction, but you need business-level strategies to position your firm to compete well in the market.

Cost leadership, differentiation, focused low-cost, focused differentiation, integrated, and customer intimacy are effective business-level strategies for gaining a competitive advantage.

Managing business strategy is a complex process that requires gathering and analyzing loads of data and drawing actionable insights to drive actions. This is where a strategy software like Kippy comes in.

Kippy uses the power of Artificial Intelligence (AI) to make managing strategies easy. With Kippy, you can easily define your strategies, align teams with goals, automatically get KPIs to measure strategy effectiveness, get accurate insights to guide actions, and more.

Ready to use the power of AI to steer your company to a competitive position in the market? Book a demo and see how Kippy can help.

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