The Four Basic Strategies a Company Can Employ to Deal With Competitive Forces
Competition provides many benefits to businesses and consumers. Consumers and businesses that purchase from others benefit by receiving higher quality products at lower prices. Companies benefit as they implement more efficient processes and reduce their costs. When companies operate in competitive industries, they need to address the competition and determine what strategy they want to follow. Four basic strategies exist for companies to use as they deal with competitive forces.
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Cost Leadership
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A cost leadership strategy requires the company to offer similar products at a lower price to the consumer. These companies negotiate with their vendors to pay lower prices for their materials. They implement high efficiency processes in their organization to reduce costs. Some companies move their production facilities to different states or countries where the manufacturing costs are lower. A cost leadership strategy works well for products that substitute well for each other, such as paper products.
Differentiation
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Companies that use a differentiation strategy present their product or service as unique from other companies. They highlight their product features, the high level of quality or the variety of colors available. These companies focus their efforts on adding additional qualities to their product that competitor products lack. Consumers pay more for these products because they perceive the value of these products to be higher. A differentiation strategy works well for skin care products where customers perceive a difference when using their favorite brand.
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Cost Focus
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A cost focus strategy builds off the success of brand name products in the market. These companies offer similar products at lower prices and focus on selected products. The company compares its product to the brand equivalent, enticing consumers to purchase the product while spending less than the brand price. A cost focus strategy works well for common products, such as shampoo.
Differentiation Focus
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A differentiation focus strategy builds off the specific needs of a smaller group of consumers. These consumers need unique qualities in their products which are not included in products created for mass distribution. For instance, a food manufacturer might produce gluten-free products to meet the needs of individuals sensitive to gluten. A differentiation focus strategy works well when companies know what their consumer needs are.
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