What Is Competitive Strategy & Its Types

The competitive strategy of a firm is comprised of the business tactics and activities used to attract customers, satisfy their expectations, and increase the company’s market position.

What is a Competitive Strategy?

Competitive strategies examine the strengths, weaknesses, opportunities, and threats of your competitors in your industry. They are then compared to yours to figure out which one is best for your business. 

The competitive strategy was introduced by Harvard professor Michael Porter. Organizations worldwide use four distinct kinds of competitive strategies, according to him. 

Businesses must comprehend the fundamental concepts of this notion to make sound business judgments during an action.

Competitive Strategy

Competitive strategy is described as a company’s long-term plan for gaining a competitive edge over its industry competitors. It is intended to establish a defensive position in an industry and obtain a higher return on investment (Return on Investment). 

These techniques are crucial when a sector is highly competitive, and consumers are offered almost identical products. 

Take a look at the mobile phone market.

A competitive strategy must begin with an assessment of the industry’s strengths, weaknesses, opportunities, and threats and then be implemented in a way that offers a competitive edge. 

A successful marketing strategy requires analyzing the competition, researching the customer’s needs, and calculating strengths and weaknesses. 

Researchers and business analysts can evaluate using market share information, SWOT analysis, and other factors, ultimately beneficial for business growth and profit.

Why is it important to have a competitive strategy?

It is more difficult to compete in a competitive industry when there is more competition. You must establish a high bar for yourself when entering a crowded market, or else you may struggle to keep up with your competitors, particularly if they are offering identical products.

A smart businessperson must closely review their competitors’ strengths, weaknesses, and competitive advantages in such a competitive environment. You should also consider possible risks. 

You need to research your potential clientele’s wants, challenges, and preferences to do this work. They can directly inform you of the shortcomings of present products, enabling you to take action accordingly.

A well-planned competitive strategy leads to sound decisions and provides the right products and services to customers.

Competitive Strategy Definition

A competitive strategy is a long-term action plan developed by corporations to gain a competitive advantage over their industry rivals. 

The objective of this strategy is to generate an above-average position and a high rate of return on investment (ROI). Businesses that compete in a market with numerous similar products offer their customers this technique.

What Are The Types Of Competitive Strategies?

There are four types of competitive strategy, according to Michael Porter. These four types of competitive strategies are, i.e., Cost Leadership Strategy, Cost Focus Strategy, Differentiation Leadership Strategy, and Differentiation Focus Strategy. 

Cost Leadership Strategy

Cost leadership strategies are tough for small firms to implement because they need a long-term commitment to supplying products and services at lower rates in the market. A low-cost product is crucial to accomplishing this; otherwise, businesses would lose money.

Cost leadership refers to becoming the lowest-cost producer or provider in an industry, which is why countries and regions with large-scale economies of scale qualify for a low cost-leadership award. 

There are several ways to reduce costs, including efficient operation, extensive distribution networks, technological innovation, and bargaining strength. Walmart is a perfect example of this.

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Walmart carries out this technique. It is well-suited for large organizations capable of producing a great number of products at a reasonable cost. 

Businesses pursuing a cost leadership strategy tend to be the lowest-priced sellers in the market. The product’s cost price should be low to generate a profit. 

A diverse distribution network, large-scale production, and excellent capacity utilization allow this to be achieved. The lowest price is the strategy’s competitive advantage.

Differentiation Leadership Strategy

Differentiating a product’s attributes that make it different and stand out from its competitors is critical to achieving differentiation leadership. 

It is possible to command a premium price for a product that can distinguish itself from similar products or services with greater brand quality and value-added features.

Brands can use this technique to differentiate themselves from the competition. The idea is to identify a distinctive characteristic that differentiates a business. 

Competitive Strategy

This method allows businesses to outperform their competitors, charging a higher price for their products. 

This method is used by brands such as Starbucks and Apple. A few examples of brands that have distinguished themselves in the marketplace: Apple, Clif Bar & Company, Ben & Jerry’s, and T-Mobile.

Cost Focus Strategy

The cost-focus strategy is similar to the cost leadership strategy. However, there is a big difference: enterprises using the cost-focused strategy provide the lowest price for products or services to a specific market segment. 

Customer service strategies such as this can be extremely beneficial for resolving customer complaints and boosting brand recognition.

Drinking water manufacturers can sell at low prices to Dubai, where people usually consume only mineral water and target these markets.

This strategy focuses on offering clients the lowest possible price, similar to the cost leadership strategy. The only difference is that a cost-saving strategy usually involves concentrating on a certain market segment with unique needs and desires. 

It is easier for businesses to build brand awareness this way. This strategy focuses businesses’ attention on geographic areas where unique requirements exist.

Differentiation Focus Strategy

The differentiation focus strategy is similar to the cost focus strategy; however, it focuses on a particular market area rather than offering consumers discounted prices. 

Differentiation strategy emphasizes distinctive qualities and characteristics to appeal to a given market segment. 

The Breezes Resorts company, for instance, provides a tranquil place without children’s distractions and caters to couples without children at its resorts.

While a cost-focused approach entails offering the lowest possible price in a narrow niche, a differentiation-focused strategy entails upgrading the product by adding distinctive features that help stand out on the market. 

Businesses that pursue this strategy also target certain market sectors, but their primary focus is on distinctive value. Hotels exclusively for adults are available in Egypt and Turkey, for example. Individuals can unwind in this manner, knowing that no child will bother them.

Competitive Strategies Examples

Aldi Case Study

Aldi’s meteoric rise is largely due to its competitive strategy, which includes ‘Lean Production’ to increase efficiency. 

Aldi’s lean manufacturing strategy aims to reduce the resources needed to produce goods and services for consumers. 

The concept also includes minimizing waste and maximizing the available resources, such as material, space, labor, and time. This reduces the overall cost of production.

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A second way that Aldi differentiates itself from its competitors is through its investment in human capital. 

The training program each member undergoes equips them with various skills that will aid them in performing a variety of job functions. Aldi can operate its stores with fewer employees as a result.

Apple Case Study

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

The company has established a unique position in the industry due to its innovative approach and premium pricing policy. 

Apple’s persistent habit of inventing new goods and integrating them promotes consumer loyalty and creates a market barrier for competitors.

Additionally, the corporation charges a premium for its items. The company’s objective is to provide a high-quality product with distinctive characteristics while retaining profitability. It does so by charging a premium to reinforce the idea of added value.

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