Yesterday, a business owner asked us for advice on business strategy over our FB page. He wondered what a good business strategy is, and what business strategy should his team adopt, for his company to be more successful and dominate the market. He liked our easy to read and comprehend articles and asked to keep the answer simple and easy to understand.
And here we go – answering “What is a good business strategy and what strategy your team is to adopt for your business to be more successful?”
We are going to explain one of the best models out there, described in the book The Competitive Strategy: Techniques for Analyzing Industries and Competitors
Michael Porter published his famous book in 1980 and most successful companies have used it as the number one guide to dominate markets and smash competitors with style.
There are 3 major elements defining your business strategy, spread over two dimensions. Based on the reach of the market those are: broad or narrow (niche) markets; and based on competitive advantage there are low cost (price) and/or differentiation.
1. In the top left corner, we have the "Cost leadership strategy". Companies, adopting the strategy aim to become the lowest-priced provider for a broad customer base.
To achieve the goal, the business strategy outlines items such as: efficient and lean production methods; closer relationship with suppliers (to get discounts); investing in cutting edge technology to reduce costs; and efficient distribution network.
Examples of such companies are RyanAir, Amazon, and Poundland. All of them tend to operate over large-broad markets and provide the lowest possible price for the largest customer base.
2. In the top right corner, we have the "Differentiation strategy". It's characteristical for the companies doing something completely different and unique and providing unique service and experience to charge premium rates and have the customers pay more.
It is achieved by delivering exceptional quality; astonishing brand value, while at the same time the level of distribution remains wide enough to cover the entire market.
Examples of companies adopting entirely "Differentiation" business models and strategies are Apple, Mercedes-Benz, and Disney parks and resorts. They create unique experiences for their customers and charge high to profit out of them.
3. In the bottom left we have the "Cost focus strategy" in a narrow market. It is used by companies to dominate very niche markets purely by offering the best possible value (in terms of costs) and price.
They achieve this by specific innovations, cost reduction techniques, complete automatization, and removal of anything that generates additional cost.
One of the most successful companies using the cost focus business strategy is Aldi. They offer a very limited variety of products in unappealing warehouses, with a reduced number of employees, and at the same time offer usually the best prices possible. Another completely different example is IKEA, offering stylish and well-designed furniture at a very reasonable price, by producing the materials abroad, and keep the service level at a minimum.
4. The last (bottom-right) quadrant contains the "Differentiation focus strategy". This strategy is characterized by the idea of using uniqueness and differentiation in a niche and focused market.
This is achieved by a high level of innovation, specific and focused customer service and features, valued by a small group of wealthy enthusiasts.
Examples of companies, using such business strategies, are Rolls Royce, Harley-Davidson, and Ducati. They all offer unique experiences and features in their products and charge premium prices for them. On the other side, there are companies like Costa Drive-Thru. They offer the same high-level quality coffee and tea for customers who do not have the time and availability to sit down and would like to have it on the move and would pay for the pleasure.
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So, the bottom line is – choose carefully the business strategy you would elaborate and follow to match your business vision and goals best. Define if you are aiming for a niche market or broad audience. Also focus on either providing some unique and distinguishable experience, feature, or services – to be able to charge premium, or if your product is more on the mainstream side, you would need to provide it in a cost-efficient manner, lowering the price. The worst option for a business strategy is to stay somewhere in the middle and try to serve customers in all the quadrants. Companies, struggling in terms of business strategy models are Yahoo, BlackBerry, Nokia, Morrisons, Sony. They all failed to innovate at such a level to end up with a unique and differentiating product or service, while at the same time were not able to reduce the costs at such levels to be able to offer the best possible prices on the market.