Crafting and Executing Business Strategies The realities of todays global economy require every commercial enterprise to carefully select one of five business strategies, as the basis of its activity, in order to remain competitive. Nowadays, even small companies cannot afford to overlook the importance of strategic business planning, due to rising of new informational technologies. The old fashioned method of relying on geographical distinctiveness of every particular market is becoming outdated. It is managers foremost responsibility to come up with business strategy that suits company the best, because it will empower such company with economic guidance tool. Let us analyze these five business strategies, so that we can choose a proper one, when it comes to managing every particular company. Low-Cost Providers Strategy The Low-Cost Providers Strategy is probably the most popular one. It is based on the classical method of raising the margins by lowering the overall cost of production.
Companies that employ this strategy, strive to underprice the competitors and to attract large enough number of price-sensitive buyers, as the main mean of obtaining profit. Usually, the cost-cuts are accomplished at the expense of elimination of some production processes, minimizing the shipping costs, hiring nonunion workers or moving production to the Third World countries and bringing the number of administrative staff to a minimum. Basically, company that employs this strategy directs its main effort towards reducing the overall cost. Even when it comes to the designing of the product, many of its features that are thought to be necessary, but as such that add to the cost, are simply eliminated. Yet, it does not seem to affect the sales negatively. Low-Cost Provider Strategy is effective when applied to the markets, where price competition is vigorous and the product is available from many other suppliers. Also, it is best suited for the markets where buyers have a significant bargaining power and where differentiation has little value to them. One of the best examples of how this strategy works is McDonalds Corporation. Despite the fact that everybody is aware of low quality of its food, this company shows every possible sign of economic vitality. Its employees are required to work extra hours, when its needed, without getting paid.
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The only mean to encourage them to do so, is the fact that they suppose to be part of corporate culture, by embracing team spirit. Nevertheless, this business strategy is not altogether faultless. Its biggest weakness is that it can be easily imitated by competitors. Also, there is always a danger that company might get too focused on lowering the cost, while disregarding customer specific needs, whatever modest they might be. Critics of Low-Cost Providers Strategy also point out to the fact that buyers sensitivity towards the price might decline, as time goes by. But this is rather hypothetical suggestion, as we see that even in Western countries, the gap between the rich and the poor continues to widen, with middle class gradually becoming a part of low class. I think that the Low-Cost Providers Strategy is best suited for the large companies that operate in the fields of retailing and electronic manufacturing. Yet, it appears that operating in these fields will require such companies to adjust its business strategies, in order for them to be able to correspond to the demands of Asian market.
Broad Differentiation Providers Strategy This strategy is usually applied when markets dynamic shows buyers sensitivity to such features of the product as uniqueness and quality, yet the market itself is large enough to also consider a cost-cutting, if it doesnt affect the quality of the product. While applying this strategy, company relies on the well established reputation of its products quality and also on the fact that the large portion of population is willing to pay extra, because it associates the quality with a brand name. The cost of the product itself is not the most important category, in this case. The trick is to make customer to choose our brand of product over the brand of others. This can be accomplished in many different ways, among which the most important, in my opinion, is winning buyers allegiance to the company by insuring that companys line of products corresponds to their highest expectation. There are three commercial advantages that the company might enjoy, if Broad Differentiation Strategy is employed properly: It allows company to charge premium prices, increases sales and creates brand loyalty among buyers. As a whole, all these three things can be considered as competitive advantage.
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Company Background General Nutrition Companies Inc. , was founded 65 years ago in Pittsburgh, Pennsylvania on the premise that Americans wanted to maintain control over their health. David Shakir ian founded the company. In 1935 he launched a dream of his by establishing a little health food store in Pittsburgh, Pennsylvania. He called it Lackzoom. The products that were offered at his store ...
Commercial enterprise that uses this competitive approach is less vulnerable to socio-political shifts in society, which directly affect the economy. We can say that the profit margins, associated with Broad Differentiation Strategy, might not be the highest, yet they are stable. It is not only the reputation of quality that guarantees companies the continuous popularity of its particular product, but also that fact that the brand name product requires brand name spare parts. For example, there many companies that manufacture heavy machinery. Yet, only Caterpillars original oil filters can be used on its tractors. The same applies to the companies such as Daihatsu and Daewoo.
In recent years, many economists begin to suggest that employing Broad Differentiation Strategy is only a proper way to conduct business. Suzanne Lowe in her article Beauty is Only Skin Deep: Does Your Firm Truly Embrace Differentiation says: Most professional service firms pursue some sort of differentiation. According to one of Expertise Marketings recent studies, 81% of professional service firms reported they used differentiation as a marketing approach in the previous three years; unfortunately, a majority thought of differentiation as simply an exercise in image enhancement (Lowe).
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The Global Product Company concept means ”to concentrate manufacturing – and ultimately other activities – wherever in the world it could be carried out to GE’s exacting standards most cost-effectively”. That means that the production is moving to countries where people are mostly underutilized (the example given in the case study tells about engineers from Eastern Europe, who cost only $1,5/h). ...
It appears that even companies, which rely on low cost of its products, as the main competitive tool, try to represent itself as firm believers in differentiation. They are well aware of brand name attractiveness to the buyers; therefore they imitate some of its appeal in their own line of products. Yet, the practice shows that such approach is usually short lived and can only be used to increase profits temporary. Companies that adopt Broad Differentiation Strategy invest in the projects, which do not become beneficial immediately, such as improvement of existing storage facilities, manufacturing expansion and quality control.
But in the long run, such projects will help the company to maintain the high quality of its products, thus guaranteeing a commercial allegiance, on the part of people that belong to the companys share of the market. The classic ways to enhance Differentiation-based commercial performance include: lowering buyers overall costs, making customer more satisfied with purchased value by continually improving the quality of the product and adding to the customers satisfaction non-economically and by making him associated with well-respected brand. This business strategy has also a few shortcomings that need to be mentioned. First of all, since about a half of what contributes to the creation of commercial appeal by the product, produced by differentiated company, consist of perceived value rather than the actual value, the line of successful products can be easily copied by the rivals. The intense advertising campaign and attractive packaging is all that usually required. Also, companies tend to charge a premium price for the product that is clearly less valuable. The common problem, in this case, lies in fact of managers inability to mask the dissonance between perceived and actual value.
Most of the products in discount stores, get there as the result of it. Best-Cost Providers Strategy This strategy can be thought of as some kind of combination between the two that were being discussed earlier. Basically, this strategy strives towards making a superb product at lowest possible cost. Its proponents disguise this strategy as such that gives customers more value for their money. But for those with an ability of critical thought, even the whole premise, upon which this strategy is based, looks contradictory. We are well aware that the low cost and high quality excludes each other. Therefore, we can only talk of creating the illusion of high quality, on the part of companies that employ this strategy. Theoretically, Best-Cost Providers Strategy enables company to win competition by matching its rivals on key product attributes and offering lower prices.
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Yet, the practical aspects of its deployment are less encouraging. Rex Mitchell in his article Strategy Formulation argues that: Best-Cost strategy is often temporary, and business should choose and achieve one of the four generic competitive strategies. Otherwise, the business is stuck in the middle of the competitive marketplace and will be out-performed by competitors who choose and excel in one of the fundamental strategies (Mitchell).
I fully agree with the author, even though there a few examples of successful deployment of this strategy in recent times. The best example is Daewoo Corporation. Its cars come out of assembly line with the pretense that they are the best in their class, even comparing to cars of such well known brands as BMW or Honda. This, of course, is not the truth.
Nevertheless, people prefer to believe in this claim, being tempted by the cheap price and modern looks. Cabil Gopinath in his article Hyundai’s strategy fits Alabama’s needs tells us about one of the factors that allowed Daewoo to move in into foreign markets peoples unawareness of this companys reputation back in Korea: Daewoo, which only has a 20 per cent share of the domestic Korean market, has pursued growth through globalization more aggressively. Being a small player at home, it decided that growth abroad was easier. It acquired capacity largely through acquisition in Eastern Europe and the Asia-Pacific (Gopinath).
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Business-level strategy can be defined as the strategy that is chosen by a company to hold a competitive advantage within the market that it is involved with. Such a strategy has to be chosen by firms because of the intense competition that exists within a certain industry and thus managers, see the need to formulate business-level strategies that are geared towards creating and maintaining a ...
All signs point out to the fact that Best-Cost Strategy is best used when companys main goal is to make as much money as possible within comparatively short period of time, even though such approach might result in such company loosing the brand loyalty, on the part of its customers, in the long run. Focused/Market Niche Providers Strategy The essence of this strategy is obvious from its name. Companies that deploy it, focus ….
