What is a Competitive Strategy?
Competitive strategy is a long-term action plan of a company which is directed to gain competitive advantage over its rivals after evaluating their strengths, weaknesses, opportunities and threats in the industry and compare it with your own. Michael Porter, a professor at Harvard presented competitive strategy concept. 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 that will help them to make a well-informed business decisions in the course of action.
Definition of Competitive Strategy
As mentioned above, competitive strategy is a long-term action plan of firms so as to gain a competitive advantage over its rivals in the industry. This strategy is focused to achieve above average position and generate a superior Return on Investment (ROI). This strategy is very important when firms having a competitive marketplace and several similar products available for consumers.
Four Types of Competitive Strategy
Michael Porter divided competitive strategy in four different types of strategies.
Cost Leadership Strategy
Cost leadership strategy is difficult to implement for small scale businesses as it involves making long term commitment for offering products and services at lower prices in the market. For this purpose firms need to produce products at low cost otherwise it will not make profit.
Since the cost leadership means to become low cost producer or provider in the industry, Any large-scale business which can provide and manufacture products at low cost by attaining economies of scale. There are many cost leadership factors such efficient operation, large distribution channels, technological advancement and bargaining power. Here Walmart is a good example.
Differentiation Leadership Strategy
Identifying attribute of a product which 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 in 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 few business examples who successfully differentiated their brands e.g. Apple, Clif Bar and Company, Ben & Jerry’s and T Mobiles.
Cost Focus Strategy
This strategy is quite a resemblance to the cost leadership strategy; however, a major difference is that 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 consumer and increase brand awareness.
For example, beverage companies manufacturing mineral water can target market segment like Dubai, where people need and use only mineral water for drinking, can be sold at a lower than competitors.
Differentiation Focus Strategy
Similar to the cost focus strategy, differentiation focus strategy targets a particular segment within the market; however, instead of offering lower prices to consumer; firms differentiate itself from its competitors. Differentiation strategy offers unique features and attributes to appeal its target segment. For example, Breezes Resorts, is a company having several resorts and caters only couple having no children and offer peaceful environment without any children disruption.
Examples of competitive Strategies
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 lesser material, space, labour and time. The overall result is a reduced cost of production.
Another competitive strategy which stands for Aldi and against its competitors is that its investment in staff members. Every member undergoes a comprehensive training program which makes them multi-skilled and they are able to undertake different roles in the workplace. In this way, Aldi has to hire lesser 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 premium pricing policy. Apple has a consistent practice of developing new products and its ability to make product complement with each other and strengthens customer loyalty and helps in creating 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 uses higher prices to reinforce the perception of added value along with maintaining profitability.