Competitive strategy refers to a way of creating competitive advantage over competitors. It represents a greater value for the customer, created either by lower prices or by providing greater benefits and services that justify higher prices. Show Generally speaking, there are four possible ways to differentiate a business – to become a cost leader (meaning that you become the lowest-cost producer in the industry) and to become a differentiation leader (meaning that you compete in areas other than price valued by customers), both in a narrow or broad scope of business’ activities.
Cost strategyCost strategy is built on no-frills. Cost leadership strives towards cutting costs to a minimum possible levels in order to provide customers with lower prices and thus boost their savings. Cost strategy prerequisites normally relate to high technical capabilities and access to capital for the company to invest in technology and assure economies of scale. In most of the cases cost strategy for first-movers lead to significant increase in market share and capacity utilization, that further drives down costs. Building a strategy on minimizing costs requires a company to achieve:
Leading cost leadership brands have obtained a major success by introducing revolutionary business models built on a single base – the lowest possible prices for a given perceived value. Differentiation strategyDifferentiation strategy is built on a belief that one needs a clear and unique positioning. Differentiation leadership focuses in providing perks that add value for consumers, while higher prices are a sort of “make up” for their higher costs. Building a strategy on a differentiation requires a company to continuously invest in and develop:
Differentiation strategy could be further divided into:
Despite the fact that these brands pointed out above achieve significant economies of scale, they do not rely on a cost leadership strategy to compete. Strong marketing capabilities enable them to sell products for a premium and at the same time persuade customers to become brand loyal. Focus OF THE strategyCost strategy as well as differentiation strategy could be narrow or broad. Small and medium sized companies are often forced to become focused, namely a niche player, since they are unable to compete against better-resourced broad market companies’ offerings. Only true understanding of the market dynamics and customers’ unique needs in combination with unique low cost or well-specified products and/or services eventually result in strong brand loyalty. How to successfully differentiate your products and/or services in the market? Are your products and/or services uniquely positioned in the market? If not – follow the steps written below: Step 1: Examine existing positioning of the company and its products and/or services in customers’ minds Step 2: Choose the competitive strategy (cost strategy vs. differentiation strategy) you think you should be following Step 3: Analyze the competition and determine the industry standard Step 4: Study market dynamics and search for market gaps Step 5: Choose your most appropriate competitive strategy and look for potential practical solutions Interested in our support? Contact us! OTHER RECOMMENDED TOPICS TO COMPETITIVE strategyYou are kindly invited to read also about:
How does the differentiation strategy create a competitive advantage?If a product can differentiate itself from its competitors in some unique way and appeal to consumers, it will have a competitive advantage and gain market share. Therefore, product differentiation is also a way for market forces to do their work and keep prices down for the consumer.
How does focus create a competitive advantage?Focus is a strategy that enables a company to dominate a niche. Through a focus strategy, your company concentrates on a limited part of a market. Companies that succeed with a focus strategy understand the dynamics and unique customer needs of their market niche.
What is cost focus in competitive advantage?(a) In cost focus a firm seeks a cost advantage in its target segment, while in (b) differentiation focus a firm seeks differentiation in its target segment. Both variants of the focus strategy rest on differences between a focuser's target segment and other segments in the industry.
Can a differentiation strategy give a firm a competitive advantage?Differentiation Strategy Defined
Usually, it involves highlighting a meaningful difference between you and your competitors. And that difference must be valued by your potential clients. A strong differentiator will provide a competitive advantage for your firm.
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