3 Generic Competitive Business Strategies

By | January 23, 2015

There are many kinds of business strategies and Michael Porter had summarized into 3 general types that giving a good beginning for business strategic thinking: cost leadership, differentiation, and focus.

Cost Leadership

Cost leadership is about becoming the low cost producer in its industry. The sources of cost advantage are varied and depend on the structure of industry. They can be economic of scale, proprietary technology, preferential access to raw material, excellent production, distribution, and other factors.  The point is, a company must reach the lower cost compared with other competitor which use differentiation and focus strategy.

mcdonald

McDonald in UK use this strategy. Their TVC opened by showing an burger with McDonald’s logo in bottom right corner, followed by testimony of Hansen saying that its price is really cheap, and ended with showing burger with price 99 p.

Differentiation

A company seek to be unique in its industry with selecting one or more attributes that customers in its industri perceive as important and uniquely positions itself to meet those needs. There are many kinds of differentiations: product, service, personal, channel, and image.

General Electric (GE) use product differentiation. They emphasize the product quality that reflected by their ads titled “Clean Air”. Federal Express (FedEx) use service differentiation. Their ads titled “Sweep” with ending tagline ‘Relax, it’s FedEx’ describes how they deliver a great service. While the company that use personal differentiation is IBM, the world first rank company in computer and office tools industry. HSBC Bank is leads in channel differentiation through their branches’s ability in adapting to the local culture in each country. Image differentiation applied by Nike in maintaining their brand image.

Focus

This strategy challenges us to choose a narrow competitive scope within an industry. Or it can be done by focusing on one or more customer segments then tailor its strategy to serve them. Amstrong Rubber focus on their qualified farming machine, or recreational vehicle while still looking for other new market niches.

Of course, it’s impossible to good at all aspects. So, just take some of proper strategies that fit with our need to reach company’s goals.

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