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Business Strategy

What is Business Strategy?

Business strategy focuses around how should the value be captured in the competitive landscape. It answers the question on how the business should compete? In other words how the business should achieve competitive advantage in its industry.

Competitive advantage can be defined as the value for customers that is greater than the cost of supplying and superior from competitors.

Business Strategy Types?

There are two types of business strategies to bring a competitive advantage:

  1. Cost Leadership Strategy – means to achieve the lowest cost possible vs. competitors while maintaining a quality that is acceptable to consumers
  2. Differentiation Strategy – means to create a unique value to the customers vs. competitors.

In reality one could apply these strategies standalone or in a hybrid mode according to the industry cycle stage and SWOT of the business.

Cost Leadership Strategy

The Cost Strategy usually means that the business seeks to make its products or provide its services at the lowest cost possible relative to its competitors while maintaining a quality and the value that is acceptable to consumers.

The techniques to achieve this are usually:

  • Lowering Input Costs, such as labor, raw materials. As an example a business my outsource some of the processes to lower the labor cost.
  • Economy of Scale, where costs drop significantly when producing multiple “goods” increases. For example, Amazon by investing in enormous warehouses to stock its inventory they achieved big scale economies in storage and distribution.
  • Economy of Scope, where efficiencies are gained from demand-side changes, such as increasing the scope of marketing and distribution by bundling two products together. (E.g. Fast-food brands bundled under the same facility taking advantage of the one distribution channel)
  • Know-how, having the staff knowledgeable and experienced may reduce trial and error and waste. Hence, the cost might end up lower.
  • Segmentation is to identify a smaller segment of the market that can be served at lower cost, where competition is not serving this segment well.

Differentiation Strategy

The Differentiation Strategy means to create a unique value to the customers that is perceived by the customer to worth a price premium.

One can create unique value to customers by having superior:

  1. Characteristic of the product, such as advanced technology (e.g Tesla), high-quality ingredients or components (e.g. Apple), product features, user experience (e.g. Uber) , superior delivery time (e.g. UPS), customization (e.g. Shopify) etc.
  2. Customer relationship, such as customer service and responsiveness (e.g. Amazon)
  3. Brand Reputation where emotional perceived value is high (e.g. Airbnb)
  4. Blue Ocean Strategy where a new market space is defined where competition is minimized rather than operating in high competitive space as red ocean. Blue ocean strategy requires doing things in a new way or/and delivering a leap in value to customers. For example

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