Competitive strategy

From CEOpedia | Management online

Competitive Strategy is the way in which a company intends to differentiate itself from its competitors, with the intention of creating and maintaining a long-term competitive advantage. This fact presupposes that we are talking about free markets, within the scope of the market economy, in which there is free competition between companies and in which competitiveness is centered on their performance, whether through the quality of the product/service, their features or their price; and not from factors exogenous to the economy, whether of a religious, political and/or social nature, which make the normal functioning of the market unfeasible.

In the society we live in today, distance is increasingly measured in time rather than in kilometers, as we are "networked" and "online", synchronously and asynchronously, so competition between companies is increasingly global and virtual. Thus, in a society where (almost) everything is volatile and ephemeral, companies need to study markets and their target audiences, in order to present services or products, whose competitive advantages are different from the competition, either because they are more accessible in in terms of value (IKEA, Zara,…), of having superior quality recognized by the market (Rolex, Dior,…), a brand positioning (Coca-Cola, Mc Donalds,…) or an innovative feature that makes them unique in the market in moment of its emergence (Windows, Facebook, Tesla,…).

Whatever the company, no matter how well known it is, it needs to be in tune with its target audience in order to know their expectations and be able to anticipate their needs.

In Competitive Strategy, Porter (1998) explains that a company must define and implement strategies, procedures, and objective goals to build a competitive advantage, which must be part of the corporate culture and the values of its employees. The creation of an advantage, by a company, leads the competition to react, trying to perform actions that cancel or minimize it. Therefore, it is part of the competitive strategy to protect the advantage that the stronger it is, the longer it can be exploited by the holder, providing greater profit, which may go through the registration of a brand, product and/or service, which is not always easy in all sectors.

Types of Competitive Advantage

By segmenting the audience(s) to be reached and their characteristics, the competitive strategies to be implemented will be defined:

  • Cost Leadership: Cost leadership is a business strategy employed by companies that want to gain a competitive advantage at the lowest price in the industry. The company projects itself as the cheapest manufacturer or supplier of a particular product or commodity.
  • Differentiation: In this strategy, companies offer more benefits than any other, providing customers with products that stand out from the competition, being able to charge a higher price, which means that you can have a higher profit margin.
  • Cost Focus: Through this competitive advantage, companies compete on the basis of price to attract potential customers from a restricted market. These do not necessarily charge the lowest prices in the industry, but rather the lowest prices compared to other companies competing in the same market.
  • Differentiation Focus: Companies that implement this strategy offer products/services with unique characteristics, which must meet the requirements of a niche market, with exclusive offers. This approach highlights the need to deliver innovative and more valuable products than the competition, satisfying the needs of these consumers.

Competitive Strategy Conclusion

In an increasingly global market economy, with a similar supply of products and services, companies need to have a well-defined market strategy in order to be competitive and stand out from the competition. Thus, it is necessary to know well the profile of their target audiences, with the main objective of creating competitive advantages that allow them to meet their needs. Consequently, companies will be able to increase their profits.

Competitive strategyrecommended articles
Market niche strategyImitator strategyGlobal marketing strategyStrategic positionCompetitive positionPrice and non-price competitionProduction conceptCompetitive productCompetitive positioning


Author: Ana Inês Jorge Gonçalves, Inês Espregueira Guerra Teixeira de Morais, Marta Gomes Ribeiro