Choose the Right Business Unit Level Strategy for You

By Erica Olsen

In strategic planning, the basic difference between business unit level strategies are (1) whether a company’s market or industry target is broad or narrow and (2) whether the company is pursuing a competitive position (or creation of superior customer value) linked to low costs or product differentiation. To determine the right business unit level strategy for your company, follow these steps:

  1. Answer the question, “Is the market or industry target broad or narrow?”

    Broad: market scope; a relatively wide market emphasis

    Narrow: limited to only one or few segments in the market

  2. Determine whether the competitive position focuses on lowest total cost or product differentiation.

    Low costs: Company works to achieve lowest costs of production and distribution.

    Product or service leadership: Company focuses on a product or service offering that’s unique from competitors in ways that appeal to buyers.

  3. Based on the results from Steps 1 and 2, make your selection.

    If the target is broad and competitive position is low costs, then by definition the overall strategy is lowest total cost.

    If the target is broad and competitive position is product differentiation, then the overall strategy is product or service leadership.

    If the target is narrow and competitive position is low costs or product differentiation, then the overall strategy is customer intimacy.

    If the target isn’t well defined and the competitive position isn’t clear, the overall strategy is middle-of-the-road. Generally, a firm can’t be successful at all three strategies and thus jeopardizes performance, which requires clear focus.