Five of the most frequently used and dependable strategic approaches to setting a company apart from rivals are:
What is a broad low-cost strategy?
In the broad-low cost strategy, the firm is focused on providing a cost-based advantage over a broad market group. An example would be Wal-mart. Here Wal-mart has a low-cost model that competitors have difficulty matching. They are in a sense ” as they appeal to a wide group of customers. Typically, to be successful in a broad low-cost strategy, the firm needs to be excellent in leveraging economies of scale.
Here Wal-mart has a low-cost model, that competitors have difficulty matching. They are in a sense, “appealing to a wide group of customers”. Typically, to be successful in a broad low-cost strategy, the firm needs to be excellent in leveraging economies of scale.
Broad does not mean targeting everybody or the masses. It refers to having multiple target markets and being the leader in servicing the specific needs of those market segments. For example, Wal-mart can be number one in being the lowest price retailer for a select group of items, and not their entire catalog. It would be impossible and not profitable to be the lowest priced retailer for all the products they carry. It is more strategic to be the lowest priced retailer for only a select group of items – items that have a higher frequency of repurchasing, as this would increase their average store visits. At the same time, Wal-mart can focus on having the largest catalog of items. Here Wal-mart is investing in being a leader in these two value propositions: lowest priced retailer for select items, and the largest variety of items in-store.
What is a broad-differentiation strategy?
The firm that employs a broad-differentiation strategy is seeking to have products and/or services that appeal to a broad spectrum of buyers through differentiation. Today’s examples include brands that are employing a “masstige” or a “prestige for the masses” approach. Apple and BMW, are example brands. They focus on creating a hip and innovative products (differentiation) that the masses would want. The masses would pay a premium for their products (relative to competing products), and choose their products over other products because of their differentiation. Apple would focus on functional simplicity, whereas BMW’s focus would be on vehicle performance. Both brands would create product versions that have a price point that the masses can somewhat comfortably adopt (Apple’s 32GB product line and BMW’s i3 series are lower priced).
To be successful in using broad-differentiation strategies the firm should have adequate adaptive advantages that would allow it to continuously innovate or be able to leverage economies of scale (that comes with selling to the masses) to create sustainable differentiation. The attractiveness of the selected differentiation should be enough that the price of the product/service would not deter the masses from purchasing it. Typically broad-differentiation products/services are not the lowest prices in their market.
What is a focused low-cost strategy?
A focused low-cost strategy is when the firm focuses on a narrow customer segment and provides low-cost services and products. They are able to improve their costs by focusing on a narrow market. They leverage experience, and predictability to be able to offer low-costs. Examples include marketing agencies that focus solely on real estate agents. These agencies sell products and services that at a very low-cost (often $50-99/month) that other agencies have problems competing against. They reduce operational complexity – which gives them a cost advantage. By reducing operational complexity, the firm can lower the speed-to-market, and manufacturing costs.
Another example is when Chevrolet launched the 2020 Chevrolet Spark. This is a low-cost car that is targeting “green customers”: customers who are environmentally conscious; and that are city dwellers.
What is a focused differentiation strategy?
A focused differentiation strategy is when the firm focuses on a narrow segment and gives its customers products or services with distinct attributes that other firms find difficulty doing. For example, Mr. Lube is an example. They focus on just giving oil changes (focused), and are able to do this service at a very expedient rate (differentiation).
What is the best-cost strategy?
The best-cost strategy is a relatively new concept. It is when the firm focuses on giving customers lower prices than rivals while providing them with better product or service attributes that are relevant to the firm’s target market.
For example, Alienware is a brand that is known to be the leader in computer gaming hardware. Dollar for dollar – they seem to be the best in value.
The key to being successful is really identifying what is truly important to the customer, and trimming out everything else that is not. Amazon is an example of a firm that falls under the “best-cost” positioning. Here they are able to provide customers low-prices (low-cost strategy) and allow them to easily find products (accessibility as a differentiation) that they are looking for, rather than having to shop for them in-person. Amazon uses algorithms, cookies, and customer purchase history and feeds it into special “display widgets” like their “Frequently Bought Together.” They have aggregated customer reviews through time, which helps educate a customer and reduce buyer’s remorse – again another form of differentiation.
All 5 strategies have pros and cons. The most important take-away is that the firm should really understand which strategic position they fall under, and which they should be in. By understanding where they are situated, they can figure out what tactics they should employ to maintain a strategic advantage.