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When developing a business strategy, your company’s present situation must be considered. Managers should be driven to evaluate the business environment for the particular industry and the competitive forces, the company’s recent performance and market status, its strong points and abilities, and its competitive weak points. Depending on the needs and the vision of the company, managers are forced to set a clear path for direction.
There are five distinct competitive strategy approaches:
1. A low-cost provider strategy – striving to achieve lower overall costs than rivals and appealing to a broad spectrum of customers, usually by underpricing rivals.
2. A broad differentiation strategy – seeking to differentiate the company’s product offering from rivals’ in ways that will appeal to a broad spectrum of buyers.
3. A best-cost provider strategy – giving customers more value for their money by incorporating good-to-excellent product attributes at a lower cost than rivals; the target is to have the lowest (best) costs and prices compared to rivals offering products with comparable attributes.
4. A focused (or market niche) strategy based on low costs – concentrating on a narrow buyer segment and out competing rivals by having lower costs than rivals and thus being able to serve niche members at a lower price.
5. A focused (or market niche) strategy based on differentiation – concentrating on a narrow buyer segment and out competing rivals by offering niche members customized attributes that meet their tastes and requirements better than rivals’ products.
How does a company’s product (or service) mix influence which competitive strategy (or strategies) it selects? Would a manufacturer approach selecting its competitive strategy differently from a consulting company?
Striving to be the industry’s overall low cost provider is a powerful competitive approach in markets with many price sensitive buyers. A company achieves low cost leadership when it becomes the industry’s lowest cost provider rather than just being one of perhaps several competitors with comparatively low costs. A low cost provider’s strategic target is to have lower costs than rivals on products of comparable quality. In striving for a cost advantages over rivals, company managers must take care to incorporate features and services that buyers consider essential. For maximum effectiveness, a low cost provider needs to pursue cost saving approaches that are difficult for rival to copy. When it is relatively easy or inexpensive for rivals to imitate the low cost firm’s method, the cost advantage evaporates quickly. Successful low cost leaders are exceptionally good at finding ways to drive cost out of their businesses and still provide a product or service that buyers find acceptable.
Can you name any low-cost providers, and how did they achieve their low-cost advantage?