Business-Level Strategy: The One Question Every Company Must Answer

Business-level strategy addresses one overarching question: how does a company compete in its chosen market? Not which markets to enter, not how to allocate capital across divisions, but specifically how a business will win customers, hold its position, and generate sustainable returns within the competitive arena it has chosen to operate in.

That question sounds simple. In practice, most companies never answer it cleanly. They confuse activity for strategy, mistake a list of initiatives for a plan, and end up with something that reads like a strategy but functions like a wish list.

Why the Overarching Question Matters More Than the Answer

Early in my career, I sat in more strategy sessions than I can count where the conversation jumped straight to tactics. What channels should we use? What should we say? How do we differentiate in the market? The problem was that nobody had agreed on what the business was actually trying to do competitively. So every tactic was being evaluated in a vacuum.

Business-level strategy is the layer that sits between corporate strategy, which decides what businesses to be in, and functional strategy, which decides how each department operates. It is the connective tissue. When it is missing or vague, every team below it is guessing. Marketing guesses at positioning. Sales guesses at ideal customer profile. Product guesses at feature priority. Everyone is working hard, but not necessarily in the same direction.

The overarching question, how do we compete, forces clarity on three things at once: who the customer is, what value the business delivers to that customer, and why that value is difficult for a competitor to replicate. Answer those three things honestly and you have the foundation of a real strategy. Leave any one of them vague and you have a positioning deck that will not survive contact with the market.

If you are working through broader go-to-market thinking alongside your competitive strategy, the Go-To-Market and Growth Strategy hub covers the wider territory, from market entry to commercial transformation.

The Three Competitive Positions and Why Most Companies Sit Between Them

Michael Porter’s framework for competitive positioning is still the most useful starting point. Cost leadership, differentiation, and focus are not fashionable concepts, but they are structurally sound. The reason they endure is that they describe real economic positions, not aspirational ones.

Cost leadership means winning by being the most efficient producer in the market. The customer gets a comparable product at a lower price, and the business makes money because its cost base is lower than the competition. This is not a strategy about being cheap. It is a strategy about structural efficiency, and it requires relentless operational discipline.

Differentiation means winning by offering something genuinely distinct that customers value enough to pay a premium for. The premium does not have to be enormous, but it has to exist and it has to be defensible. Differentiation that can be copied in six months is not differentiation. It is a temporary feature advantage.

Focus means targeting a narrow segment, either by customer type, geography, or use case, and serving that segment better than any generalist competitor can. It is a legitimate strategy, but it requires genuine commitment to the segment. A focus strategy that quietly tries to serve everyone is not a focus strategy at all.

The failure mode I see most often is what Porter called “stuck in the middle.” A business that is not quite the cheapest, not quite the most differentiated, and not quite focused enough to own a segment. It competes on every dimension simultaneously and wins on none of them decisively. Market penetration becomes extremely difficult from that position because there is no clear reason for a customer to choose you over a sharper alternative.

When I was running an agency and we were growing the team from around 20 people toward 100, one of the most important decisions we made was to stop trying to be everything to everyone. We had clients across too many sectors, with too many service lines, and no clear story about what we were actually best at. Narrowing the focus was uncomfortable. It meant turning down work. But it created clarity, internally and externally, that made every subsequent decision easier.

How Business-Level Strategy Shapes Marketing (and Where Marketing Gets It Wrong)

Marketing does not exist upstream of business-level strategy. It exists downstream of it. The competitive position a business chooses should determine the marketing approach, the messaging hierarchy, the channel mix, and the type of creative work that gets produced.

A cost leadership business should not be producing brand advertising that emphasises craftsmanship and heritage. A differentiation business should not be leading with price. A focus business should not be running broad awareness campaigns targeting everyone in the category. These mismatches happen constantly, and they happen because the marketing function was briefed without a clear strategy underneath it.

I have judged the Effie Awards, which are specifically about marketing effectiveness rather than creative achievement. What consistently separates the winning entries from the ones that look impressive but do not perform is strategic alignment. The best work is always rooted in a clear understanding of what the business is trying to do competitively. The creative expression varies enormously, but the strategic foundation is always solid.

Marketing built on top of a weak business-level strategy is like building on sand. You can produce excellent work, but it will not hold. The messaging will drift. The positioning will shift with whoever is loudest in the room that week. And over time, the brand will become a collection of tactical moments rather than a coherent competitive identity.

There is a harder truth here too. Marketing is often asked to compensate for strategic problems that sit above it. A business that has not answered the competitive question clearly will frequently ask marketing to paper over the gap. More campaigns, more content, more channels. I have seen this pattern in multiple organisations, and it rarely ends well. Marketing is a blunt instrument when used to prop up a business that has not figured out how it competes. The better move is to fix the strategy first.

What Answering the Question Actually Looks Like in Practice

Answering “how do we compete” is not a one-hour workshop exercise. It requires honest assessment of what the business is genuinely better at than its competitors, what customers actually value (not what the business assumes they value), and where the business has structural advantages that can be sustained over time.

The customer insight piece is where most strategies fall short. Businesses tend to build competitive positions around what they can do rather than what customers need. Hotjar and similar tools exist precisely because there is a persistent gap between what companies think their customers want and what those customers actually do. Closing that gap is not optional when you are trying to define a competitive position. It is the work.

A useful test for whether a business-level strategy is real or aspirational: can every senior leader in the organisation state, without preparation, what the company’s competitive position is and why a customer should choose them over the nearest alternative? If the answers vary significantly across the leadership team, the strategy is not embedded. It is a document.

The second test is operational alignment. A genuine competitive position shows up in how the business allocates resources, not just in how it communicates. A differentiation strategy that is not backed by meaningful investment in product, service quality, or customer experience is not a strategy. It is a positioning claim without substance behind it. BCG’s work on commercial transformation makes this point clearly: strategy only creates value when it changes how the organisation operates, not just how it describes itself.

One of the most instructive experiences I had was working with a business that had genuinely excellent customer satisfaction scores but was struggling commercially. The product was good. The service was good. But the competitive position was undefined. They had not answered the question of how they competed, so they were winning customers almost by accident and losing others for reasons they could not diagnose. Once we worked through the competitive question properly, the marketing became dramatically more focused and the commercial results followed.

Business-Level Strategy Versus Corporate Strategy: Keeping Them Separate

A common source of confusion is treating business-level strategy and corporate strategy as interchangeable. They are not, and conflating them creates real problems in execution.

Corporate strategy answers the question of which businesses to be in. It is about portfolio decisions, capital allocation across divisions, and decisions about where the organisation as a whole should compete. For a single-business company, corporate strategy and business-level strategy overlap significantly. For a diversified organisation with multiple business units, they are distinct layers with distinct decision-making processes.

Business-level strategy operates within the boundaries set by corporate strategy. Once the corporate level has decided which markets to participate in, business-level strategy takes over and determines how to win within each of those markets. Mixing the two up leads to situations where business units are trying to make portfolio decisions they are not positioned to make, or where corporate leadership is making competitive calls without the market-level insight to make them well.

For marketers, the practical implication is to understand which level of strategy you are being asked to support. If you are being asked to help define competitive positioning within an existing market, that is business-level strategy work. If you are being asked to evaluate whether to enter a new market or exit an existing one, that is corporate strategy territory. Both are legitimate, but they require different inputs, different frameworks, and different stakeholders.

When Business-Level Strategy Needs to Be Revisited

Strategy is not static. The competitive question needs to be revisited whenever the market shifts in a way that changes the basis of competition. New entrants with structurally lower cost bases, technology changes that commoditise previously differentiated features, or shifts in customer behaviour that alter what they value, all of these can make a previously sound competitive position obsolete.

The mistake most organisations make is treating strategy review as an annual calendar event rather than a response to meaningful change. An annual review is better than no review, but it is not sufficient in markets that move quickly. BCG’s research on agile scaling points to the same underlying tension: organisations need structures that allow strategic thinking to happen continuously, not just in designated planning cycles.

The signals that a business-level strategy needs revisiting are usually visible before the financial results confirm it. Customer acquisition costs rising without explanation. Win rates declining against specific competitors. Increasing price sensitivity in segments that were previously less price-conscious. These are competitive signals, and they deserve a strategic response, not just a tactical one.

In one agency turnaround I was involved in, the financial problems were real and urgent, but the root cause was strategic. The competitive position the agency had built over several years had been eroded by changes in the market, specifically the commoditisation of services that had previously been differentiated. The tactical response, cutting costs and pushing harder on sales, bought time. The strategic response, redefining the competitive position around a genuinely distinct capability set, was what actually turned the business around.

Forrester’s analysis of go-to-market struggles in complex industries illustrates how quickly competitive positions can erode when strategy is not actively managed. The companies that hold their position are not the ones with the best products. They are the ones that stay clear-eyed about how they compete and are willing to adapt when the basis of competition shifts.

If you want to go deeper on how competitive strategy connects to commercial growth across different market contexts, the Go-To-Market and Growth Strategy hub covers the full range, from early-stage positioning through to scaling and transformation.

The Connection Between Competitive Position and Growth

Growth strategy and business-level strategy are not separate conversations. The way a business competes determines which growth levers are available to it and which are not.

A cost leadership business grows primarily through volume and operational scale. The growth model is built on efficiency gains and market share capture. A differentiation business grows through premium pricing power and customer loyalty. The growth model depends on sustaining the perceived and real distinctiveness of the offer. A focus business grows by deepening penetration within its chosen segment or by carefully expanding the definition of that segment over time.

When growth strategies are disconnected from competitive position, they tend to underperform. Growth tactics applied without a clear competitive foundation often produce short-term spikes that do not compound. The customer is acquired but not retained, because the underlying value proposition is not strong enough to hold them once the acquisition incentive disappears.

The businesses I have seen grow most consistently are the ones where the competitive position is clear, the marketing reflects that position honestly, and the product or service actually delivers on what is being promised. That alignment, between strategy, marketing, and delivery, is not complicated in principle. But it requires discipline to maintain, especially under growth pressure when the temptation is to chase every opportunity rather than compound the ones that fit the strategy.

If a company genuinely delivered on its competitive position at every customer touchpoint, the growth case would largely make itself. Marketing would be amplifying something real rather than compensating for something absent. That is the version of marketing I find most interesting to work on, and it starts with answering the competitive question properly.

About the Author

Keith Lacy is a marketing strategist and former agency CEO with 20+ years of experience across agency leadership, performance marketing, and commercial strategy. He writes The Marketing Juice to cut through the noise and share what works.

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