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:
- Cost leadership strategy
- Differentiation strategy
- Cost focused strategy
- Differentiation focused strategy
Without one of this competitive strategies, 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, Michael Porter, identified these four major types of competitive strategies that businesses often implement, to vary the 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.
COMPETITIVE ADVANTAGE: Lower cost and differentiation
COMPETITIVE SCOPE: Broad target and narrow target
- Cost leadership strategy: Try to produce at the lowest cost in the industry (broad target).
- Differentiation strategy: Try to be unique in the industry (broad target).
- Cost focused strategy: Try to take cost advantage in the market segment that the company acts (narrow target).
- Differentiation focused strategy: Try to be unique in the market segment the company acts (narrow target).
Author: Iker Sanz, Telmo Caballero and Alejandro Beltrán