Aside from inarguable opportunities, globalization can increase competitive pressure by rising compatibility and digital transparency, while decreasing switching costs offer consumers the possibility to change companies like socks. In such a volatile environment, it becomes more important for companies to effectively position themselves, know their strategic competitive advantages, and communicate them to their customers.
Don’t be stuck in the middle
There are a variety of strategic positioning options out there which may determine the success or failure of a strategic plan. Each have their advantages and disadvantages. An established concept for efficient competitive positioning comes from Michael E. Porter, whose generic strategies can be used on any product or service of any company-size. Companies have the option of positioning their products either by cost leadership or differentiation. Cost leadership means having a more effective cost structure than competitors, while differentiation relies on having characteristics and features which are valued by their customers and therefore justify a higher price. In terms of scope, companies can decide between offering their products to selected segments of the market or compete industry-wide.
Know the difference between cost and price leadership
Cost leadership is a common strategy that aims to have lower delivery costs of products and services than the competition, not to be mistaken with the price offered on the market. A good cost structure allows the choice between charging industry-average prices or lower prices. Charging the industry-average can raise profits, while lower prices can increase your market share at the expense of some profit. Your costs can be cut down by investing in low-cost production or efficient logistics. However, remember that you can be copied easily by other low-cost producers.
On the other hand, a differentiation strategy aims to offer high-quality products, which stand out because of better functionality, features, connected services and the brand itself. Therefore a brand should choose values which are also shared by its target group. To achieve differentiation, base your unique selling position on thorough research and constantly search for innovative ideas and product development, which can lift you ahead of your competition.
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The possibility to strongly connect with your customers relies on the selection of a niche market strategy, which aims at specific sub-markets instead of the whole market. It’s especially important to understand the needs of your customers which should be met with low-cost or unique products. Remember to choose one of these two strategies and apply in it a niche market, because avoiding the competition of the overall market by selecting sub-markets may be an idea other companies had before you.
Whatever strategy you choose for your organization, remember that deciding on one is essential. Flipping between different strategic directions will not align with relocating your resources most effectively. When aiming at a cost leadership strategy whether on the whole market or just specific segments, resources should be allocated towards lowering the cost of internal processes. Alternatively, a differentiation strategy requires resources allocated towards product and service development and constant innovation. It’s important that your chosen strategy matches your company’s strengths, so be sure to conduct a SWOT analysis before you decide on a strategic direction, while considering the special features of your industry.
Questions that will keep your organization on the right track:
- Which strategies match our company’s individual strengths and which strategic directions don’t fit with our organization?
- Can we be a cost leader against our low-cost competitors in the long term?
- If we decide on a differentiation strategy: What can we offer our customers that our competitors can’t?
- Do we have enough expertise to specialize in a niche market where established companies are already operating?
Are you developing your organization’s strategic plan? Learn how: