Risks with Business Level Strategy Essay
Risks with Business Level Strategy
There are five type of business strategies and each type had its own risk when selecting and implementing it. For cost leadership strategy, the risks that are associate with this strategy are a loss of competitive advantage to newer technologies, which allows rivals to produce at lower cost, a failure to detect changes in customers’ need and the ability of competitors to imitate the cost leader’s competitive advantage through their own unique strategic actions. Competitors sometimes do learn to imitate the cost leader’s strategy and if this happened, cost leader should take corrective action that is to even lowed the price again.
Then for differentiation strategy, the risk associated with it includes a customer group’s decision that the differences between the differentiated product and the cost leader’s good or service are no longer worth a premium price. What it means here is that firm might providing the differentiated features that exceed customers’ needs and competitor can offer a better price than the cost’s leader with better combination of product features. Besides that, the inability of a differentiated product to create the type of value for which customers are willing to pay for premium price is another risk where customer perceived that rivals offer the same product and maybe even with lower price. Not only that, the ability of competitors to provide customers with product that have features similar to those associated with the differentiated product, but at a lower cost is also one of the risk. Last risk is the threat of counterfeiting, whereby firms produce a cheap “knock-off” of a differentiated good or service.
The risks for both focused cost leadership and differentiation strategy are combine together. The risks include competitor’s ability to use its core competencies to ‘out-focus’ the focuser by serving an even more narrowly defined competitive segment. Here it mean that competitor can narrow down its competitive segment than the cost leader. Besides this, decisions by industry-wide competitors to serve a customer groups specialised needs that the focuser has been serving is also one of the risk. Lastly is a reduction in differences of the needs between customers in a narrow competitive segment and the industry-wide market. In other words, it means that the needs of customers within a narrow competitive segment may become more similar to those of customers as a whole. When this occurs, the advantages of a focus strategy are either reduced or eliminated.
Lastly for integrated cost leadership/differentiation strategy, the primary risk that awaiting it ahead is that a firm night produce a product that do not offer sufficient value in terms of either low cost or differentiation. When this occurs, the company is “stuck in the middle” which is a disadvantage for the firm. Being stuck in the middle prevents the firm from dealing successfully with the five competitive forces and from earning above-average returns.