What is Competitive Strategy? Types of Competitive Strategy.

What is a Competitive Strategy?

The company’s competitive strategy refers to its long-term objectives to gain a competitive edge over its competitors.

The objective of competitive strategy is to establish a defensive position in the industry while obtaining a higher return on investment (ROI).

A competitive strategy is a long-term action plan developed by a business to gain a competitive edge over its competitors by analyzing their strengths, weaknesses, opportunities, and threats in the marketplace and comparing them to your own.

When a sector is highly competitive and almost identical products are available to consumers, such techniques are vital. For example, take a look at the mobile phone market.

The concept of a competitive strategy was presented by Harvard professor Michael Porter. He argues that organizations employ four distinct types of competitive strategies. 

Businesses must understand the fundamental principles underlying this notion so that they can make sound business decisions.

A competitive strategy must consider an industry’s strengths, weaknesses, opportunities, and threats and then be tailored in a way that provides a competitive advantage.

A competitive strategy consists of several critical components, including understanding the competition, researching customer needs, assessing their strengths and weaknesses, and so on.

Research and evaluation of market share, SWOT analysis, and other factors will increase revenue and profit for businesses.

Definition of Competitive Strategy

Companies develop competitive strategies to build a competitive edge over their industry rivals. 

This strategy aims to achieve an above-average position and a high return rate (ROI). Businesses operating in a competitive marketplace with many similar products are required to use this technique.

Four Types of Competitive Strategy

Porter outlined four distinct types of competitive strategies applied to any business, regardless of size or product type. 

They are known as generic strategies due to their tendency to be adopted by most corporations.

These forms of competition are, in fact, fundamental.

A business may also pursue additional strategic alliances, collaborative partnerships, mergers, acquisitions, vertical integration, and outsourcing techniques if deemed necessary.

1. Cost Leadership Strategy

Small businesses find it challenging to implement cost leadership strategies since they need long-term commitments to supply products and services at lower prices than their competitors. 

A low cost of production is required to accomplish this; otherwise, businesses would lose money.

The corporation’s goal is to become the lowest-cost producer in the industry, which is accomplished by large-scale production, enabling it to obtain economies of scale. 

An organization’s cost leadership is determined in part by the capacity utilization, leverage, and technology implementation it can execute. E.g., Micromax mobile phones.

Cost leadership entails being an industry’s lowest-cost producer or provider, so any large-scale business that can provide and manufacture goods at a low cost can qualify. 

There are many cost-cutting strategies, including efficient operation, extensive distribution networks, technological innovation, and bargaining power. An excellent example of this is Walmart.

2. Differentiation Leadership Strategy

A key element of differentiation leadership is identifying a product’s unique attributes that establish it apart from its competitors. 

When a product can distinguish itself from similar products and services on the market by demonstrating brand quality and value-added features, it can command a high price to offset the high cost.

This strategy allows the corporation to establish a distinct position in the market by keeping the distinctive features of its products. 

This differentiated leadership leads to market leadership for companies. Businesses also charge a premium for their products (due to their high value-added features). 

Products of this type provide superior brand recognition, quality, and extensive distribution channels, among other features—for example, BMW or Apple.

Businesses such as Apple, Clif Bar and Company, Ben & Jerry’s, and T Mobile have differentiated themselves successfully.

3. Cost Focus Strategy

Cost Focus Strategy resembles cost leadership strategy in many respects; however, a critical difference between the two is that cost-focused strategy enterprises target a specific market segment and offer that segment the lowest possible prices for their products or services. 

This approach is very helpful in resolving consumer complaints and enhancing brand recognition.

It pursues this strategy by focusing on specific market segments and maintaining competitive pricing in those segments. A business that follows this method will please a sufficiently large number of customers and be famous.

For instance, beverage companies that manufacture mineral water can target markets such as Dubai, where people consume only mineral water and sell it at a lower price than their competitors.

Differentiation Focus Strategy

A differentiation focus strategy is similar to a cost focus strategy because it targets a particular market segment; however, organizations differentiate themselves from competitors rather than provide consumers with lower prices. 

A differentiation strategy emphasizes distinct qualities and characteristics to appeal to a particular segment of the market. 

Breezes Resorts, for example, is a corporation with multiple resorts marketed toward couples without children, offering a peaceful environment away from distractions.

This strategy seeks to make the firm unique from one or two competitors, focusing on a specialized market. 

This kind of differentiation aims to appeal to border clients who avoid competitors’ products because they lack minor features. Niche marketing is an obvious example of the concept.

Competitive Strategies Examples

Apple Case Study

Apple, Inc. is a computer and consumer electronics company that manufactures and markets products like tablets, smartphones, and music players. 

Combining innovative marketing strategies and premium pricing has helped the company establish a unique position in the market. 

The constant invention of new products by Apple and its ability to integrate them creates a barrier that prevents competitors from gaining ground in the market.

Additionally, the corporation charges a premium for its items. Company targets are to provide high-quality products with distinctive characteristics and to maintain profitability. This is done by setting a premium to reinforce the notion of added value.

Aldi Case Study

Aldi’s meteoric rise in the retail food market is primarily due to its competitive strategy, including implementing ‘Lean Production’ to increase efficiency. 

A key element of Aldi’s lean manufacturing strategy is to minimize the resources used to supply its products and services to customers. 

The concept also includes minimizing waste and maximizing available resources, including materials, space, time, and labor. This lowers the overall cost of production.

Aldi’s investment in human capital is another way it distinguishes itself from its competitors. 

Every member undergoes comprehensive training to enhance their skills and abilities in their careers. As a result, Aldi can operate its stores with fewer employees.

Competitive Strategy Versus Business Strategy

A business strategy encompasses a broader range of activities than a competitive strategy. For example, the company strategy encompasses how to compete with competitors and how management resolves critical strategic concerns.

Hill and Jones describe business strategy as a set of action plans that strategic managers employ to leverage a company’s resources and distinctive capabilities to acquire a competitive edge over rivals.

Managing a business presents several strategic challenges. Management must deal with all of these concerns successfully to remain competitive.

A business strategy addresses concerns such as these in addition to the question of ‘how to compete.’ A competitive strategy refers to “management’s strategy for successfully competing and providing superior value to customers.”