Competitive strategy refers to a long-term plan of action that an organization develops for the achievement of competitive advantage over the competitors after looking into the strengths and weaknesses of the competitor and comparing the strengths and weaknesses of latter with its own strengths and weaknesses. The strategy may include actions to deal with the competitive pressure of the market, to attract customers, and to strengthening the position of the company in the market.
Michael Porter’s Classification
On competitive strategy, economic development and competitiveness of countries, states, and regions, Michael Porter is considered as a top authority. The classification of generic competitive strategies according to Porter includes differentiation, cost leadership, differentiation focus, and cost focus. They are discussed below:
This strategy focuses on developing a competitive advantage by making a unique product or service available and marketing it. A product or service that is unique and is different from what the competitors are providing. For the same a lot of investment needs to be made in research and development and small-sized firms will not be able to afford it. A successful differentiation strategy may help in brand loyalty building by the customers and lowering the price sensitivity.
The cost leadership strategy works when the organization produces goods at a lower cost as compared to that of the competitors. There are two major ways for businesses to increase profits. They are- decreasing costs or increasing sales. In the strategy of cost leadership, the focus is on acquiring quality raw materials at the lowest price. In addition, the business owners need to use the best labor to convert the raw materials into valuable goods that the customers can use. Hence, this strategy is beneficial specifically in the market where the price is a crucial factor.
Focus strategy can be adopted if the business thinks that marketing to a homogenous customer niche may not be an effective line of action for a certain product or service that the organization is providing. This strategy includes the tailoring of marketing strategies by the organizations according to the selected customer segment and ignoring the other segments.
There are two forms of focus strategy. The objective of the business would be to have a benefit over the competitors with respect to cost in the segment targeted when the focus is on cost. Hence, a cloth store may aim at selling the cheapest clothes in a specific region, but not in other places too.
A differentiation focus strategy involves taking advantage of the special needs of customers of a certain segment. The differentiation is achieved by marketing the product by highlighting its unique features. Like, a company may design a product that is specifically for left-handers.
Both the authors described three value principles or generic competitive strategies. They are operational excellence, product leadership, and customer intimacy. It refers to the opinion that the organization should opt and then achieve leadership in the market and acceptable performance in the other two should be ensured.
This strategy focuses on achieving cost leadership. The main area of concern is automating the work procedures and manufacturing processes so as the operations are streamlined and costs can be reduced. This approach is adopted by various companies, such as McDonald’s, Southwest Airlines, FedEx, etc. The approach helps these companies to have standardized, transaction-based, and high-volume production that merely requires much differentiation.
Operational excellence is a good strategy for markets where customers prefer cost factor to make a choice. This is generally the situation in the context of commoditized and mature markets where continued growth is offered by the cost leadership. Organizations running on this strategy have rule-based, standardized operations along with strong disciplines in the organization. These businesses are effectively centralized. Various disciplines, like SCM, Six Sigma, etc. are incorporated in a business model that focuses on the volume.
The strategy focuses on developing a culture that helps in introducing superior goods and services in the market. There are several elements that are crucial for the success that product leaders know very well, such as good creativity, teamwork, and problem-solving skills. These leaders are able to achieve first-class market prices owing to the experience that they develop for the customers. Among the corporate disciplines that they cultivate, research portfolio management, product management, teamwork, marketing, and talent management are also included.
Product leaders work so that they can leverage their expertise across organizational and geographical boundaries. This is done by gaining expertise in disciplines, like knowledge management and collaboration. Product leadership strategy is adopted by various corporates, such as Apple, BMW, Pfizer, Fidelity Investments, etc. It is adopted by several industries, like consumer electronics, automotive, pharmaceuticals, etc.
Customer intimacy as the word reflects refers to the closeness or intimacy to the customer. It focuses on the precision in segmenting and targeting markets as well as customizing offerings to match the demands of the specific market perfectly. The comprehensive customer knowledge is blended with operational flexibility by the organizations that practice customer intimacy so that practically any need of the customers can be quickly responded to. It stretches from product personalization to meet special requests of the customers. There are some functions that are needed to be aligned with the requirements of the individual customer, they are product development, executive functions, administrative focus, and manufacturing. The solutions derived from the customer intimacy strategy are not the cheapest or the most original products but they are, however, considered good enough for the individual. This strategy is adopted by various famous organizations, such as Amazon, IBM, Lexus, Virgin Atlantic, etc.
Firstly, there are some questions that are needed to be answered by an organization in order to develop a competitive strategy depending upon the priority of the business and the functions it performs.
Purpose of the organization describes the reason for the existence of the business. The business purpose should lie outside of the business and should be in the betterment of society. The sole purpose of the business is to generate the customer.
The business should recognize the competencies of the organization and using them for their benefit so that it can attain a competitive advantage. Core competencies refer to the competencies that are exclusive to the organization or the ones that an organization performs better as compared to the competitors. It also refers to the competencies that help in creating cost advantage or majorly contribute towards customer perceived value. Organizational competencies refer to the competencies that are functional and the experience that an organization has in reference to how it combines and integrates skills of an individual employee for the accomplishment of goals. Some examples of such competencies are given below:
While listing the competencies the organization should include the skills that show product characteristics as well as tangible and service features. That features should be mentioned which helps in persuading customers to purchase the products or services of the organization.
The identification of current business position will help the business to identify the present functions that are being performed and to improve the functions for effective operations.
It is crucial to identify the method that the organization adopts for its growth. If, for instance, the company choose acquisition, the acquisition criteria should be delineated.
The organization must know what its product is and the market priority for a particular product. It can be thought on the lines of-
Organization’s aim should be in accordance with the output it wants to achieve. It should include all the activities that an organization performs for the accomplishment of the vision of the organization. This includes financial, operating, social and various other conditions that are needed to achieve the vision of the organization. Indicators must be identified so that performance can be measured. Also, qualitative and quantitative values of the indicators that will help in describing the achievement of organizational objectives.
Obstacles should be identified that may avoid the achievement of business objectives. There are generally few obstacles or hindrances that are the root cause. Only one barrier can become a hindrance for various goals that the organization wants to achieve. It entirely depends on the organization how it tackles the barriers or obstacles that are associated with the competitive structure of the business.
The organization must decide which strategic approach it wants to choose (offensive, defensive, or guerilla) so that the obstacle or barrier can be dealt with to achieve the goals of the organization. Also, the strategies that the organization adopts for the achievement of competitive advantage.
If there is a possibility to overcome, neutralize or alter the barrier by using the resources available, in this case, an offensive strategy will be used. If there is a possibility of elimination, minimizing or circumventing the barriers or obstacles by reducing the scope of the operations, in this case, a guerilla strategy will be used by the organization. When neither of the above-mentioned conditions can be satisfied, a defensive strategy will be used.
The main area of concentration must be realized by the organization of its marketing strategy. The organization may want to concentrate on the current market or to develop fresh markets. To keep the existing market the organization may need to develop new products or services. And to start into a fresh market, the organization will focus on increasing the product or service penetration by introducing them to the new market. If the marketing strategies lack focus, they will not yield the expected results and will not be effective enough.
Competitive intelligence includes continuous collection and analyzing information regarding the competitor’s business, customers and industry. This is done in a legal and ethical manner so as the organization can achieve a business edge over the rival firms. The collection of information should be done only from publicly available sources so that it is done ethically and within the boundaries of the law. The information received may decipher about the strengths and weaknesses of the competitors, their competitive strategy and how they response to the external changes that take place in the environment and new strategies or moves that the competitors are using to have an upper hand in the market.
A competitive strategy can be developed after the organization has information about competitors. It may include their future plans and strategies; the organization can use the information for its own benefit. This will also help the organization to make accurate and calculated decisions regarding the functioning of the business for goal achievement. A sustained competitive advantage will also be achieved by the organization.
It may also include a rigorous study of the annual reports of the competitors so that the organization may get any inside information about the rival firms regarding their plans and strategies. It can be done in several ways, like keeping an eye on the visitors on their website or social media page, or by going through journals that provide any information about the competitors’ future plans or new products or services.
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