3 Business Strategies You Need to Know
While the word “generic” may have a bad connotation, it simply means “characteristic of a group or class.” So when we talk about generic business strategies, we mean strategies applicable to any business, regardless of the product or service.
There are three major approaches to developing a strategy that will help you achieve a competitive business advantage, and we’ll be exploring all of them in this article.
Cost Leadership
The Cost Leadership approach is utilized by companies seeking to be the lowest-cost producer of a product or service. This is mainly achieved by lowering business costs while charging an average price point, which in turn helps companies achieve higher profitability. In order to lower business costs, a business may implement one or more of the following methods:
- Increase inventory turnover
- Lower wage/benefit costs
- Develop low-cost distribution channels
- Bargain with suppliers
- Lower manufacturing costs
- Establish logistical competencies
Alternatively, Cost Leadership can be achieved by increasing market share while charging lower prices. Either way, Cost Leadership is about organizing your resources to achieve the lowest possible cost, so the company can position itself in the low-cost segment among competitors offering similar products to customers.
Be aware that some of the methods employed in the Cost Leadership model may be unpopular with employees and/or customers, especially lowering wages and benefits. Ultimately, implementing cost-cutting measures may not be worth the negative effect to the brand loyalty you’ve been building, so it’s important to evaluate the pros and cons of any method.
Differentiation
Differentiation works when products or services have significant points of difference such as unique offerings, exceptionally high quality, brand cache, advanced technology or superior service. These differences allow companies to charge a premium. To achieve effective Differentiation, companies need to excel in research and development. They need to be innovators who can deliver high-quality products or services.
Companies that plan to adopt the Differentiation method also need sales and marketing teams that can communicate with potential customers in a way that helps them understand the specific benefits offered exclusively by the company.
Focus
Companies that use Focus strategies concentrate on niche markets, developing low-cost or specialized products by gaining insight into their customers and the market. Because companies that use the Focus strategy build strong brand recognition and customer loyalty, competitors have a harder time gaining a toehold in the same market segment.
If you have decided to use Focus as your main approach, you still need to apply either the Cost Leadership or Differentiation strategy to your business plan. In fact, the originator of the generic strategies plan, economic thought leader Michael Porter, actually didn’t consider Focus to be its own strategy. Instead, he suggested that there were four, not three, generic business strategies: Cost Leadership, Differentiation, Cost Focus and Differentiation Focus.
With Porter’s Cost Focus approach, companies control expenses and, in turn, lower product prices by targeting a narrower range of market segments. Like almost everyone else existing during this pandemic, I’ve been streaming a lot more content. I came across the 2011 version of Mildred Pierce, with Kate Winslet as the titular character. (She did a great job, but she’s simply not Joan Crawford.) Anyway, after Mildred leaves her husband, she gets a job as a waitress and eventually wants to open her own restaurant.
But she notices how much waste there was, and how much time and money were spent dealing with suppliers. So instead of a menu with a large selection, she decides she’ll serve only chicken and waffles, with her famous pies for dessert. Although Mildred doesn’t know it, she’s very much practicing the Cost Focus approach by keeping her costs to a minimum while also targeting a narrower market.
On the other hand, Differentiation Focus requires significant product differences so the company can target specific market segments. It’s essentially taking the Differentiation strategy and going a step further. In Mildred’s case, her fabulous pies, which were well-known throughout the neighborhood, were enough of a draw for her to also use Differentiation Focus.
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Whether you use Cost Focus or Differentiation Focus, the most important part of achieving a successful outcome via the Focus strategy is ensuring that you serve the niche market in a way that more broadly focused companies can’t, by providing some sort of extra, be it through lower prices or added value.
The best way to determine which generic business strategy aligns with your company goals is to perform a SWOT Analysis, which will help you evaluate your strengths, weaknesses, opportunities and threats. If you need help analyzing your market position or developing a marketing strategy, ThreeSixty is here to help. Our digital marketing team has the skills and experience to help you grow your market share while considering cost efficiencies.
You can contact a member of our digital marketing team through our website or by calling 716-226-1368.
