The Five Key Competitive Strategies

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The Five Key Competitive Strategies

A few weeks back, I encouraged you to assess your company’s competitive position and find
out whether you’re positioned for success or if your competitive position is in dire need of
improvement.  If your position happens to need some help, read on . . .

Your competitive strategy consists of the approaches and initiatives you take to
attract customers, withstand competitive pressures, and strengthen your market
position.  According to Arthur Thompson and A.J. Strickland in Strategic
Management: Concepts and Cases, there are five competitive strategies you
should consider:

 A low-cost leader strategy: striving to be the overall low-cost provider of a product or service
that appeals to a broad range of customers (a couple of examples are Sam’s Club and Southwest
Airlines).
 A broad differentiation strategy: seeking to differentiate the company’s product offerings from
rivals’ in ways that will appeal to a broad range of buyers [a couple examples are Nordstrom
(known for customer service policies and personnel) and Whole Foods (emphasis on health
foods and organic groceries)].
 A best-cost provider strategy: giving customers more value for the money by emphasizing both
low cost and upscale difference, the goal being to keep costs and prices lower than those of
other providers of comparable quality and features (a couple of examples are the Honda and
Toyota car companies with customer satisfaction ratings that rival those of much more
expensive cars).
 A focused, or market-niche, strategy based on lower cost: concentrating on a narrow buyer
segment and outcompeting rivals on the basis of lower cost (The Gap is a good example).
 A focused, or market-niche, strategy based on differentiation: offering niche members a
product or service customized to their tastes and requirements [examples are Rolls-Royce (sells
limited number of high-end, custom-built cars) and men’s big and tall shops (sell mainstream
styles to a limited market with specific requirements)].

So, which one of these strategies is best for your business?

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What Is Competitive Advantage? Three

Strategies That Work
Use These Three Harvard Business School Strategies to Beat Your Competition
By Kimberly Amadeo

Updated June 13, 2019

A competitive advantage is what makes an entity's goods or services superior to all of a

customer's other choices. The term is commonly used for businesses. The strategies work for any
organization, country, or individual in a competitive environment.

To create a competitive advantage, you've got to be clear about these three determinants.

1. Benefit. What is the real benefit your product provides? It must be something that your
customers truly need. it must also offer real value. You must know your product's features, its
advantages, and how they benefit your customers. You must stay up to date on the new trends
that affect your product. This includes new technology. For example, newspapers were slow to
respond to the availability of free news on the internet. They thought people were willing to pay
for news delivered on a piece of paper once a day. 

1. Target market. Who are your customers? What are their needs? You've got to know exactly who
buys from you and how you can make their life better. That’s how you create demand, the
driver of all economic growth. Newspapers' target market shrank to those older people who
weren't comfortable getting their news online. 
2. Competition. Have you identified your real competitors? They aren't just similar companies or
products. They also include anything else your customer could do to meet the need you can
fulfill. Newspapers thought their competition was other newspapers until they realized it was
the internet. They didn't know how to compete with a news provider that was instant and free.

To be successful, you need to be able to articulate the benefit you provide to your target
market that's better than the competition. That's your competitive advantage.

You must reinforce that message in every communication to your customers. That includes
advertising, public relations, and sales aids. It even includes your storefront and employees.

In 1985, Harvard Business School professor Michael Porter wrote "Competitive

Advantage." It's the definitive business school textbook on the topic. He wrote it to help
companies to create a sustainable competitive advantage. Just because a company is the market
leader now, doesn't mean it will be forever. A company must create clear goals, strategies, and
operations to build sustainable competitive advantage. The corporate culture and values of the
employees must be in alignment with those goals.

It's difficult to do all those things well. It's especially difficult to do them year in and year out.

Porter outlined the three primary ways companies achieve a sustainable advantage. They are cost
leadership, differentiation, and focus. Porter identified these strategies by researching hundreds
of companies.  

Cost leadership means companies provide reasonable value at a lower price. Firms do this by

continuously improving operational efficiency. That usually means paying their workers less.
Some compensate for lower wages by offering intangible benefits such as stock options,
benefits, or promotional opportunities. Others take advantage of unskilled labor surpluses. As
these businesses grow, they can benefit from economies of scale and buy in bulk. Walmart and
Costco are good examples of cost leadership.

But sometimes they pay their workers less than the cost of living. Higher minimum wage laws
threaten their advantage.

Differentiation means companies deliver better benefits than anyone else. A firm can achieve
differentiation by providing a unique or high-quality product. Another method is to deliver it
faster. A third is to market in a way that reaches customers better.

A company with a differentiation strategy can charge a premium price. That means it usually has
a higher profit margin.

Companies typically achieve differentiation with innovation, quality, or customer service.

Innovation means they meet the same needs in a new way. An excellent example of this is
Apple. The iPod was innovative because it allowed users to play whatever music they wanted, in
any order. Quality means the firm provides the best product or service. Tiffany's can charge more
because patrons see it as far superior to other jewelry stores. Customer service means going out
of the way to delight shoppers.

Nordstrom's was the first to allow returns with no questions asked.

Focus means the company's leaders understand and service their target market better than
anyone else. Their either use cost leadership or differentiation to do that. The key to a successful
focus strategy is to choose a very specific target market. Often it's a tiny niche that larger
companies don't serve. For example, community banks use a focus strategy to gain sustainable
competitive advantage. They target local small businesses or high net worth individuals.
Their target audience enjoys the personal touch that big banks may not be able to give.

Customers are willing to pay a little more in fees for this service. These banks are using a
differentiation form of the focus strategy.
How Countries Use Competitive Advantage

A country can also create competitive advantage. It's called national competitive advantage
or comparative advantage. For example, China uses cost leadership. It exports low-cost products
at a reasonable quality level. It can do this because its standard of living is lower, so it can pay its
workers less. It also fixes the value of its currency, the yuan, at a value lower than the dollar.

India started as a cost leader but is moving toward differentiation. It provides skilled, technical,
English-speaking workers at a reasonable wage. Japan also changed its competitive advantage. In
the 1960s, it was a cost leader that excelled at cheap electronics. By the 1980s, it had shifted up
to differentiation in quality brands, such as Lexus.

America's comparative advantage is innovation. U.S. companies bring innovative products to

market faster than can other countries. That's why Silicon Valley has become America's
innovative advantage. 

America is so innovative because it has a vast and affluent domestic consumer base. It's easy to
test new product ideas and work out the bugs at home. Once successful, they’re marketed
throughout the world. 

Amar Bhidé makes a good point in "The Venturesome Economy: How Innovation Sustains
Prosperity in a More Connected World." Even if the United States starts to lag behind other
countries in producing engineers, it's still better at bringing innovations to market. That's just one
of the ways natural resources boost America's advantage. 

How Individuals Use Competitive Advantage

You can use the theory of competitive advantage to advance your career. If you are an employee,
work as if you were in business for yourself. Your target market is your employer. Your benefit
is how you increase the company's profit. Your competition is other employees and
technology. Communicate your competitive advantage in your appearance, your resume, and
your interview. Once you've got the job, continuing communicating your advantage in your work
performance.
Michael Porter and Sustainable Competitive Advantage

Porter's Generic Strategy

by Neil Kokemulle

In his 1985 book "Competitive Strategy: Techniques for Analyzing Industries and Competitors,"
management expert Michael Porter outlined his generic strategies of business. These are the
basic options your company has in entering and successfully competing in a given industry. The
choices include cost leadership, differentiation, cost focus and differentiation focus.

Cost Leadership

A cost leadership strategy means your emphasis is on maintaining low operation costs. By doing
so, you can either charge average prices and maintain a high profit margin or charge lower prices
than competitors to keep a high market share. High profit margins mean the difference between
your prices and cost of goods sold is high. Achieving high margins means you are operationally
efficient, which bodes well for long-term success. Wal-mart and other discount providers thrive
on beating out competitors with a low-cost, low-price approach to attract customers.
Cost Focus

In Porter's generic strategies, the cost or differentiation of your approach combined with
emphasis on a narrow or broad market create your strategy. A cost focus means you also
maintain a low-cost approach, but unlike cost leadership, you specialize in serving a smaller,
niche market. Thus, you compete against larger chains and other smaller companies by offering
good prices to a specific type of customer. This is a challenging strategy to put into practice,
because niche businesses often have less bargaining power than larger chains with broad
markets.

Differentiation

Each of the differentiation strategies centers on doing things that are distinct or better than
competitors outside of price competition. A straight differentiation approach means you target a
broad market. To succeed, you need to thoroughly understand the needs of your broad target
market and offer superior product or service benefits, elite services or other unique attributes,
and use sales and marketing to convey these benefits. This strategy is common in highly
competitive industries with large players who often invest heavily in TV ads and other marketing
efforts to attract customer attention.

Differentiation Focus

A differentiation focus follows the same concept as differentiation, but the target is a smaller,
more niche customer group. The point of this strategy is to offer superior value and extra benefits
to a specific market. Smaller companies often use this strategy to compete against larger chains
that can offer lower prices but not provide the same quality of products and services. A provider
of handcrafted furnishings and decor would likely use this strategy because the costs are
probably higher than mass-produced items, and the market for such products are smaller.

https://yourbusiness.azcentral.com/four-major-types-competitive-strategies-6166.html

What Are the Four Major Types of

Competitive Strategies?
by Sampson Quain; Updated May 04, 2018

Related Articles

 Four Generic Strategy Alternatives for Marketing

 Porter's Generic Strategy
 The Differences Between Value-Based Pricing & Cost-Based Pricing
 Markup Vs. Profit Margin
 SWOT Analysis Example for a Noodles Industry
 What Are the Pricing Strategies of Supermarkets?

Without a competitive strategy, your business will have a tough time attracting customers. But
unfortunately, there’s no one-size-fits-all strategy that you can implement, because every
business faces different challenges within different markets. However, Harvard professor
Michael Porter, identified four major types of competitive strategies that businesses often
implement, to varying degrees of success. Although your business may not use every element of
these strategies, understanding their core principles can help you evaluate the effectiveness of
your existing competitive strategy.

Cost Leadership Strategy

Cost leadership is a tough strategy for small businesses to implement, because it requires a long-
term commitment to selling your products and services at a cheap price. The challenge, however,
is that you also have to produce these products and services at a low cost, otherwise, you lose
your profit margin. Large businesses that can make their products cheaply and sell them at a
discount while still generating a profit, can drive competitors out of the market by consistently
offering the lowest prices.

Differentiation Strategy

Identifying an attribute or characteristic that makes your product or service unique is the driving
factor in a differentiation strategy. For example, a company that produces dental drills that make
no sound could market itself to dentists as a silent drill that helps reduce the fear that patients
have when they hear that drill sound. If your business is able to differentiate its products or
services in the minds of buyers, it can reap the rewards of higher sales volume based on the
perceived value, which your business offers, but your competitors do not.

Cost Focus Strategy

A cost focus strategy is similar to a cost leadership strategy, but the major difference is that in a
cost focus strategy your business targets a very specific segment of the market and offers that
market the lowest prices available. For example, a company that sells energy drinks could target
a city that has a high percentage of people that compete in extreme sports and sell those drinks at
a much lower price than its competitors could. The fact that this segment of the market is much
more likely to buy energy drinks is a major factor in the company deciding that lowering its
prices would be advantageous.
Differentiation Focus Strategy

Like the cost focus strategy, the differentiation focus strategy targets a very specific segment of a
market, but rather than offering the lowest prices to the buyers in that market, a business offers
something unique that competitors aren’t offering. For example, a boutique that sells clothes for
people that are four feet tall or shorter would be pursuing a differentiation focus strategy by
catering to a very narrow and unique segment of the clothing market. Instead of spending money
on making clothes for everyone, the boutique would be able to focus on designing clothes that
are only suited for very short buyers.

Video of the Day

References

 Quick MBA: Competitive Advantage

 University of Cambridge: Porter’s Generic Competitive Strategies
 KB Manage: Competitive Strategy

About the Author

Sampson Quain is an experienced content writer with a wide range of expertise in small
business, digital marketing, SEO marketing, SEM marketing, and social media outreach. He has
written primarily for the EHow brand of Demand Studios as well as business strategy sites such
as Digital Authority.

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 Pricing Strategies for the Apparel Industry

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  Differentiated Marketing Strategy

https://smallbusiness.chron.com/competitive-business-strategies-4623.html

Competitive Business Strategies

by Nicky LaMarco; Reviewed by Michelle Seidel, B.Sc., LL.B., MBA; Updated March 08, 2019

Related Articles

 1 Four Methods of Competitive Advantages

 2 What Is the Chief Difference Between a Low-Cost Provider Strategy and a Focused Low-Cost
Strategy?
 3 Examples of Management Strategies for a Cake Bakery Business
 4 Advantages & Disadvantages of Non-price Competition

Businesses compete with each other and even themselves to earn public support every single
day. New jingles appear on the television, and new advertising techniques pop up and return all
of the time. A business major involves a surprising amount of creativity, but exactly how do
businesses compete?

There are four approaches to competitive business strategy, all of which were defined as such by
Michael Porter. Porter is an American academic professor at Harvard, widely known for his
theories about business and economics.
Clustering of Competitive Businesses

Of the theories, one notable aspect of interest is clustering. Have you ever noticed how there are
always multiple fast food places on the same road? While fast food places are most easy to
notice, all businesses actually do this. Clusters of law firms or bakeries or even clothing or
jewelry shops exist everywhere.

This clustering creates competition between the businesses for the people in that area, and in fact
benefits the businesses as a whole.

 By being so close together, each business is forced to get better and better to keep up with the
surrounding businesses.
 Certain areas become known for a specific superior skill set or attraction due to the competition
enforcing quality within the businesses.

The Four Types of Competition

A business can either do a focus or a leadership type approach to competition. In a focus, the
business aims to have an advantage over a couple of the other businesses, e.g. one or two. In a
leadership, however, the business aims to have a complete advantage over all other businesses –
generally through some form of differentiation. Differentiation is what distinctly makes a
business stand out, i.e., a different aspect intended to make the business be distinctive from
others.

Therefore, the four types of competition are cost leadership, differentiation leadership, cost
focus, and differentiation focus.

1. In a cost leadership approach, a business will generally mass produce to drive prices really low,
gaining an advantage in pricing.
2. In a differentiation leadership, generally the business will create a distinct and attractive
differentiation aspect, then use it to drive prices higher.
3. In a cost focus, the business will focus on a specific thing to lower costs and gain customer
popularity.
4. And lastly, in a differentiation focus, a business targets customers who refrain from buying
products from competitors due to a small missing feature. The business will adopt this feature
as a niche and therefore win over those customers.

The Big Picture

By implementing each of these techniques, businesses are choosing what they want to be known
for. They're all aiming to gain an advantage in the overall competition, but in different ways,
which will earn them different types of reputations. For example, a cost focus would promote
customer popularity because they will try the cheap item, love the quality of it, and likely be a lot
more willing to try the company’s more expensive items.
Hopefully, this will lead to them choosing to support the company in the future. In short, think of
what you want your business to be known for before choosing a technique, though all will help
you in the long run.

6 Strategies for Handling Competition in

Business
By

R. Khera

Every business in all industries faces the task of handling competition. Regardless if you are
selling products online or providing a valuable service in your community, it is highly likely that
another company is offering a similar product or service. Part of developing and implementing a
successful business strategy means learning how to address the other businesses that are your
direct competitors.

The best way to combat competition is by focusing on all of the things that your company
provides and others do not. Handling competition is easy when you review your competition
regularly and face the challenge as a learning experience. You might discover untapped strengths
that you never imagined your company had. Here are some great strategies for handling
competition in business:

 Find your niche.

Biting off more than you can chew is common mistake that many business owners make.
If you truly want to combat competition, you need to build a reputation of excellence in
one specific niche. Focus on meeting a specific customer need (or small set of needs) to
the very best of your ability and do it better than your competitors.

 Capitalize on the competition.

One effective strategy for handling competition is to look for ways to turn your
competitors into clients. Not all of your competitors may be targeting the same clients
you do. By learning about what your competition specializes in, you can network and
refer clients to them. In return, sharing about your products and services gives
competitors an opportunity to refer your small business to their clients.
  Study larger companies.

A competitive business strategy that works across the board is examining what other
companies with more resources have done in the past. You can learn from their mistakes
and adopt their successful strategies as your own. Learning from bigger companies with
greater revenue streams and workforces can give you renewed perspective on handling
competition.

 Develop a joint venture relationship.

Building a network of synergistic relationships can also help you combat competition.
Look in your industry to find companies that share synergies, but are not direct
competitors, and then approach them with a joint venture proposal. For example, if you
are a wedding florist, consider working with a wedding stationer to offer joint packages
or even a simple referral program.

 Start local.

The best customer base you can build is the one immediately surrounding your small
business. You need to learn how to start handling competition in your local area before
branching out to try and serve others. Start local and build to serve neighboring
communities.

 Get involved in your local community.

Community groups, activities and initiatives are key things that can help you develop a
more competitive business strategy. This is the best way to build genuine relationships in
your area, and word-of-mouth advertising is one of the most effective means of branding
your business. Combat competition by being visible and active in your area.

Competition is healthy in the business world as it encourages creativity and innovation. You can
combat competition by getting to know your competitors and using information about them to
your own advantage. The key to all of the tips above is building strong relationships and
communicating effectively with business owners and customers in your community. Take a
proactive approach to handling competition, and your small business can’t go wrong.

Jelaskan

1. Apakah yang dimaksudkan denga Strategi Diversifikasi dan Tipe Diversifikasi

2. Jelaskan Level Diversifikasi
3. Jelaskan BCG Matrix dan berikan contoh implementasinya pada perusahaan dengan 3 Unit
Bisnis