There are three competitive strategies that you can implement across your business: Cost-leadership strategies, differentiation strategies, and focus strategies.
Note: This is the second article in a series on competitive strategy from FrogDog. To read the first article, click here.
Once you’ve analyzed your competition, you can develop a powerful competitive strategy for your business that you can sustain over the long term.
To help you assess what route might be best for your company, let’s look at three valid options for competitive strategies:
Cost-Leadership Strategies
Large businesses use cost-leadership strategies to achieve the lowest possible production and distribution costs through economies of scale. Firms that pursue cost-leadership strategies tend to have strengths in purchasing, manufacturing, and distribution, which help them manage their costs. Companies with this strategy typically target value-seeking customers with no-frills, basic products and penetration pricing.
This is the easiest competitive strategy to copy, meaning that other large competitors may be able to set lower prices to capture more market share. However, cost-leadership strategies can help large businesses fight off challenger companies and brands that may not have the operational strength and size needed to drive prices to their lowest points.
Differentiation Strategies
Companies using differentiation strategies target quality and value-seeking customers with premium offerings and strong brand equity. Their competitors cannot offer what they offer.
To pursue a differentiation strategy, you might focus on a smaller part of the current offerings. Whole Foods and its strategy to offer a large variety of organic products—rather than one shelf or aisle, like most grocery stores—provides an example of this strategic option in play. Also, Whole Foods exclusively sells a number of organic products.
Focus Strategies
Some businesses choose to focus on one or more narrow market segments to protect themselves from competition. A focus strategy helps companies with limited resources compete.
The first type of focus strategy is to become the cheapest offering in a highly targeted market segment. For example, you might focus on having the lowest priced coffee in a particular geographic area. This is similar to a cost-leadership strategy, but more highly specialized.
Another focus strategy is to target niche market segments with specialized product lines. As with the difference between cost-leadership and a price-centered focus strategy, a niche-market focus differs from a differentiation strategy by its specialization on highly customized offerings that target specific market subsets.
Need help refining your competitive strategy? Contact FrogDog.
This article is the second in a series by FrogDog about competitive strategy. To read the first in the series, click here. Our next article in the series discusses how to choose the right competitive strategy.
Image credit: Image courtesy of watiporn/FreeDigitalPhotos.net
Posted: Apr 29, 2014
Updated: Aug 11, 2020
competitive strategies cost leadership differentiation focus