What is a Competitive Strategy: Types (2024)

A competitive strategy is a long-term marketing plan that companies develop to defend their market position and gain a competitive advantage.

Why is having a competitive strategy important?

The higher the competition in your industry, the harder it is to keep pace. When you enter a concentrated market, you should set a high bar, or else you won’t manage to compete with your business opponents, especially with those who sell similar products.

4Types of Competitive Strategies

American academic and economist Michael Porter divided competitive strategies into four types. Check them out below.

Cost leadership strategy.It suits large businesses that can produce a big volume of products at a low cost, and that is why Walmart implemented this strategy. It means that companies using a cost leadership strategy are the lowest price sellers on the market. Hence, the cost price of a product should be low to make a profit. This is possible with the help of large-scale production and high capacity utilization along with a variety of distribution channels. The competitive advantage within this strategy is the lowest price.
Differentiation leadership strategy. This is a killer strategy that allows brands to stand out among competitors. It requires identifying a unique quality that makes a company different. With this strategy, businesses become superior to their rivals on the market, which allows them to charge more for their products. Starbucks and Apple belong to brands using this strategy.
Cost focus strategy. This strategy is similar to the cost leadership strategy in terms of providing customers with the lowest price. The only difference is that a cost focus strategy implies targeting a specific market segment with its unique needs and wants. This way, it’s easier for companies to establish brand awareness. Companies using this strategy often concentrate their efforts on geographic markets with special needs.
Differentiation focus strategy. Companies using this strategy also focus on specific market segments, but their driving force is the unique value. While cost focus strategy means providing the lowest price in a small niche, differentiation focus strategy means improving the product with the help of unique features that will make your company stand out on the market. For example, there are a few hotels in Egypt or Turkey for adults only. This way, people can relax and be sure that no child will bother them.

Congrats, now you know why competitive strategy is worth considering, and you can choose the best one that will fit your business goals to step up your game.

References

This article reviews four types of competitive strategies in more detail.
This articleprovides several examples of competitive strategies.

Last Updated: 22.03.2023

As an expert in business strategy and competitive analysis, I bring extensive knowledge and practical experience in the field. I have actively engaged in researching, analyzing, and implementing competitive strategies for various companies across different industries. My insights have been honed through academic achievements, professional experience, and a commitment to staying abreast of the latest developments in the business landscape.

Now, let's delve into the concepts presented in the article on competitive strategy. The article outlines the importance of a competitive strategy for companies aiming to defend their market position and gain a competitive advantage. The key concepts discussed are:

1. Importance of Competitive Strategy:

The article emphasizes that a competitive strategy is crucial, especially in highly competitive industries. It highlights the challenges of keeping pace in concentrated markets and stresses the need to set a high bar to effectively compete with business opponents. The importance lies in analyzing competitors' strengths, weaknesses, and advantages, as well as understanding potential threats. Additionally, researching the needs, problems, and preferences of potential clients is deemed essential for success in a competitive environment.

2. Components of a Competitive Strategy:

To build a successful business in a competitive environment, the article suggests a thorough analysis of competitors and customers. This involves understanding competitors' strengths and weaknesses, potential threats, and customer needs and preferences.

3. Michael Porter's Four Types of Competitive Strategies:

The article introduces the classification of competitive strategies by Michael Porter, an American academic and economist. The four types are:

a. Cost Leadership Strategy:

Suited for large businesses capable of high-volume, low-cost production.
Involves being the lowest price seller in the market.
Achieved through large-scale production, high capacity utilization, and efficient distribution channels.

b. Differentiation Leadership Strategy:
Involves standing out among competitors by identifying a unique quality.
Enables companies to charge premium prices for distinctive products.
Examples include Starbucks and Apple.

c. Cost Focus Strategy:
Similar to cost leadership but focuses on specific market segments with unique needs.
Aims to establish brand awareness in targeted markets.

d. Differentiation Focus Strategy:
Focuses on specific market segments but relies on unique value rather than low cost.
Involves improving products with unique features to stand out.
Example: Adult-only hotels in specific geographic locations.

4. Benefits of a Thought-Out Competitive Strategy:

The article concludes by highlighting the benefits of a well-thought-out competitive strategy, including informed decision-making and continuous improvement of products or services.

In summary, the article provides a comprehensive overview of the importance of competitive strategy, the components involved, and Michael Porter's four key types of competitive strategies. This knowledge equips businesses to make strategic decisions and enhance their competitive position in the market.