Five of the most frequently used and dependable strategic approaches to setting a company apart from rivals are:
- Broad low-cost strategy
- Broad differentiation strategy
- Focused low-cost strategy
- Focused differentiation strategy
- Best-cost strategy
What is 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 low-cost model that competitor’s 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.
What is broad-differentiation strategy?
The firm that employs broad-differentiation strategy is seeking to differentiate by having products and/or services that appeal to a broad spectrum of buyers. Today’s examples include brands that are employing a “masstige” or a “prestige for the masses” approach. Apple, BMW, are example brands. They focus on creating hip and innovative products (differentiation) that the masses would want. The masses would pay a premium for their products (relative to competing products). To be successful in “broad-differentiation strategies” the firm should have adequate adaptive advantages that would allow it to continuously innovate.
What is 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 who 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.
What is a focused differentiation strategy?
A focused differentiation strategy is when the firm focuses on a narrow segment and gives their 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 best-cost strategy?
The best-cost strategy is a relatively new concept. It is when the firm focuses on giving customers lower cost then rivals while providing them with better product or service attributes. 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 (differentiation) that they are looking for, rather then 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 buyers 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. By understanding where they are situated in, they can figure out what tactics they should employ to maintain a strategic advantage.