A competitive strategy is a long-term action plan of a company that is directed to gain a competitive advantage over its rivals after evaluating their strengths, weaknesses, opportunities, and threats in the industry and comparing them with your own. Michael Porter, a professor at Harvard, presented the concept of competitive strategy. According to him, there are four types of competitive strategies that are implemented by businesses globally. It is necessary for businesses to understand the core principles of this concept, which will help them make well-informed business decisions in their course of action.
What is a Competitive Strategy?
A competitive strategy is a long-term plan that outlines how a company will differentiate itself from its competitors in the marketplace and achieve a competitive advantage. It is an essential part of any business strategy, as it helps companies to identify and capitalize on their strengths, while also mitigating their weaknesses and addressing any external threats or opportunities.
There are many different types of competitive strategies, but some of the most common include:
- Cost leadership: This strategy involves becoming the lowest-cost producer of a good or service in the industry. This can be achieved through economies of scale, efficient production processes, or access to low-cost resources.
- Differentiation: This strategy involves creating a product or service that is unique and valuable in the eyes of customers. This can be achieved through innovative product design, superior customer service, or a strong brand reputation.
- Focus: This strategy involves targeting a specific niche market and becoming the leading provider of products or services to that market. This can be a successful strategy if the niche market is large enough and there is not a lot of competition.
Companies can use one or more of these competitive strategies to achieve a sustainable advantage in the marketplace. However, it is important to note that competitive strategies are not static. Companies must constantly be monitoring the competitive landscape and adjusting their strategies as needed.
Four Types of Competitive Strategy
Michael Porter divided competitive strategy into four different types of strategies.
Cost Leadership Strategy
A cost leadership strategy is difficult to implement for small-scale businesses as it involves making long-term commitments to offering products and services at lower prices in the market. For this purpose, firms need to produce products at a low cost; otherwise, they will not make a profit.
Since cost leadership means to become a low-cost producer or provider in the industry, any large-scale business can provide and manufacture products at a low cost by attaining economies of scale. There are many cost leadership factors, such as efficient operation, large distribution channels, technological advancement, and bargaining power. Here, Walmart is a good example.
Differentiation in Leadership Strategy
Identifying attributes of a product that are unique from competitors in the industry is the driving factor in the differentiation leadership strategy. When a product is able to differentiate itself from other similar products or services on the market through superior brand quality and value-added features, it will be able to charge premium prices to cover the high cost.
There are a few business examples that successfully differentiated their brands, e.g., Apple, Clif Bar and Company, Ben & Jerry’s, and T Mobile.
This strategy bears quite a resemblance to the cost leadership strategy; however, a major difference is that in the cost focus strategy, businesses target a particular segment within the market, and that segment is offered the lowest price of the product or service. This type of strategy is very useful to satisfy your consumers and increase brand awareness.
For example, beverage companies manufacturing mineral water can target a market segment like Dubai, where people need and use only mineral water for drinking, which can be sold at a lower price than competitors.
Differentiation, Focus, and Strategy
Similar to the cost focus strategy, the differentiation focus strategy targets a particular segment within the market; however, instead of offering lower prices to consumers, firms differentiate themselves from their competitors. The differentiation strategy offers unique features and attributes to appeal to its target segment. For example, Breezes Resorts is a company with several resorts that caters to only couples with no children and offers a peaceful environment without any disruption to children.
Examples of competitive Strategies
A Case Study of Aldi
The rise of Aldi in the food retail industry is very impressive, and this position is mainly associated with its competitive strategy, which is its use of ‘Lean Production’ which makes the organization more efficient. Through lean production, Aldi aims to reduce the number of resources that are used in the provision of goods and services to consumers. Additionally, the concept also involves eliminating waste and utilizing less material, space, labor, and time. The overall result is a reduced cost of production.
Another competitive strategy that stands out for Aldi and its competitors is its investment in staff members. Every member undergoes a comprehensive training program, which makes them multi-skilled and enables them to undertake different roles in the workplace. In this way, Aldi has to hire less staff to run its stores.
Case Study of Apple
Apple Inc. is the manufacturer and marketer of computers and consumer electronic products, including tablets, smartphones, and music players. The company has attained a distinct position in the industry through its competitive strategy, which is innovation and a premium pricing policy. Apple has a consistent practice of developing new products, and its ability to make products complement each other strengthens customer loyalty and helps create a barrier for competitors in the market.
The company also sets premium prices for its products. The aim of the company is to offer a high-quality product with unique features and use higher prices to reinforce the perception of added value while maintaining profitability.