A competitive strategy is a long-term marketing plan developed by companies to defend their market position and gain a competitive advantage over competitors.
Why is a competitive strategy important?
The higher competition in your industry, the harder it is to compete. When you enter a concentrated market, you should set a high bar otherwise you won't manage to keep pace with your rivals, especially with those who sell similar products.
To build a successful business in such a competitive environment, you should thoroughly analyze your competitors' strengths, weaknesses, and advantages. Take into account possible threats as well. Research the needs, problems, and preferences of your potential clients to cope with this task. They can tell you directly what current products lack so that you could act accordingly.
With a thought-out competitive strategy, businesses make informed decisions and constantly improve their products and services.
In the next section, we'll review the main types of competitive strategies.
4 Types of Competitive Strategies
American academic and economist Michael Porter divided competitive strategies into 4 types. Check them out below.
- Cost leadership strategy. This strategy is implemented by Walmart. It suits large businesses that can produce a big volume of products at low cost. It means that companies using cost leadership strategy are the lowest price sellers on the market. Hence, the cost price of the product should be low to make a profit. This is possible with the help of large-scale production and high capacity utilization along with a variety of distribution channels. The competitive advantage within this strategy is the lowest price.
- Differentiation leadership strategy. This is a killer strategy that allows brands to stand out among competitors. It means identifying a unique quality that makes a company different. With this strategy, businesses are superior to their rivals on the market that allows them to charge more for their products. Starbucks and Apple belong to brands using this strategy.
- Cost focus strategy. This strategy is similar to the cost leadership strategy in terms of providing customers with the lowest price. The only difference is that a cost focus strategy implies targeting a specific market segment with its unique needs and wants. This way, it’s easier for companies to establish brand awareness. Very often companies using this strategy concentrate their efforts on geographic markets with special needs.
- Differentiation focus strategy. Companies using this strategy also focus on specific market segments but their driving force is the unique value. While cost focus strategy means providing the lowest price in a small niche, differentiation focus strategy means improving the product with the help of unique features that will differentiate the company on the market. For example, there are a few hotels in Egypt or Turkey for adults only. This way, people can relax and be sure that no child will bother them.
Congrats, now you know why competitive strategy is worth considering, and you can choose the best one that will fit your business goals.
- This article reviews 4 types of competitive strategies in more detail.
- This article provides several examples of competitive strategies.
Last Updated: 01.04.2021