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What is Strategy? Definition, Components & Examples Explained

Competitive advantage: By identifying a clear plan for how you will reach your goals, you can focus on capitalizing on your strengths, using them as a competitive advantage that makes your company unique in the marketplace.

Business Level Strategies

What are business-level strategies?

Let’s look at a simple example: Let’s say you’re a new pizza restaurant opening up in town, you’d need to figure out if you’ll be competing by say offering the lowest-priced pizza (cost leadership strategy). On the other hand, you could opt for being unique by opening the first vegan pizza in town (differentiation strategy).

1. What is cost leadership?

A cost leadership business-level strategy is a strategy that businesses use to increase efficiency and reduce production costs to make it below that of the industry average (or competition in the area). In other words, a business charging lower prices for its products than others in the same industry – the cheapest of its kind around!

Consumers are becoming more and more aware of the choices available to them. They’re often on the lookout for how to increase their purchasing power. One way to grab their attention is to use a pricing strategy that no one else is using – one that customers simply can’t refuse. Using this business strategy could gain you more business due to offering a much stronger value proposition to customers.

A business could lower the final cost of their product or service by cutting costs elsewhere in the business. For example, by having small production costs (buying on a large scale for example), few middlemen, fewer employees, etc. Such businesses can offer the same level of quality products or services compared to their competition. This allows them to offer the very same thing for a smaller buck.

Wal-Mart and Costco are good cost leadership business strategy examples. Their operations are so efficient and large scale that they can get the lowest pricing on goods, enabling them to sell them for prices of a much more affordable nature than other retailers.

This strategy will only work if you can lower your production costs enough to still make a profit at the end of the line and outprice your competition. This means it’s often best for larger corporations as they are able to buy in larger quantities (thus lowering production costs). It may not be the best idea for Mom and Pop stores or small chains. For elite brands such as Gucci or Apple, a cost leadership strategy is out of the question and likely to backfire (read more about how small businesses compete with big corporations).



2. What is differentiation?

A differentiation strategy is all about providing a product or service with unique attributes when comparing against the competition (something that Become has gotten very adept at doing!). It’s all about making the product or service really stand out from the crowd – one that solves a problem that no one else has. It requires innovation and out of the box thinking. To execute the differentiation strategy, you’d need to conduct extensive market research to find a gap in the market that needs filling, or by improving an existing product or service.

Differentiation is applied to businesses by simply taking a product or business and making it better or different than the competition. There are many examples of differentiation in the real world – take the cosmetics brand LUSH for example. They are advocates of handmade and ethical buying, making them stand out from their competition (Sephora and Etsy). Their shops offer quality customer service with a one-of-a-kind retail experience where customers can touch, try and feel the products in the store.

Differentiation is one of the main strategies that businesses use to compete for customers in their industry. Just about any industry or business could use this technique. The trick is to find the pain-points of your competitors’ customers and solve them.



Business Level Strategies

3. What is focused differentiation?

A focused differentiation business strategy involves targeting a specific or small group of customers with differentiated products. This means your product or service should have unique features that meet the demands of a niche market.

Niche or “narrow” markets can be defined in many ways, it could, for example, mean focusing on a particular sales channel such as only selling online. It could also be in terms of a demographic group, think of a hotel that offers many activities for children (or without). Both these hotels have focused their differentiation to a particular market – one with children, and one that is dedicated more to romantic couples looking for peace and quiet.

In markets where product comparison knowledge is very important (such as camping equipment), new stores could find it difficult to compete with firms that are following a focused differentiation business strategy. This type of strategy is good for businesses that have found a niche they’d like to specialize their products or services in that also has sufficient demand. Just make sure to do plenty of market research before you dive in.

Why is having a business strategy important?

Essentially, it reflects the strengths and weaknesses of the company and answers how the company plans to respond to the threats and opportunities in the market in which it operates.

That’s why a strategy is often called the lighthouse for a company’s management: It aligns the efforts of all functional departments and gives its employees a Northstar that guides their daily decision making.

The absence of such a blueprint would lead to disordered actions in each department, limiting the organisation’s effectiveness as a whole. This incoherence always results in a loss of competitive power that will be exploited in the market.

The effectiveness of business functions is greater when a strategy is focusing the efforts of the different departments towards one goal.

Components of a business strategy

1. Vision and business objectives

A business strategy is intended to help you reach your business objectives. With a vision for the direction of the business, you can create clear instructions in the business strategy for what needs to be done and who is responsible for completing each step.

2. Core values

A business strategy guides top-level executives, as well as departments, about what should and should not be done, according to the organization’s core values. It helps everyone stay on the same page and with the same goals.

3. SWOT analysis

SWOT stands for strengths, weaknesses, opportunities and threats. This analysis is included in every business strategy, as it allows the company to rely upon its strengths and use them as an advantage. It also makes the company aware of any weaknesses or threats.

4. Tactics

Many business strategies articulate the operational details for how the work should be done in order to maximize efficiency. People who are responsible for tactics understand what needs to be done, saving time and effort.

5. Resource allocation plan

A business strategy includes where you will find the required resources to complete the plan, how the resources will be allocated and who is responsible for doing so. In this regard, you will be able to see where you need to add more resources in order to complete your projects.

6. Measurement

The business strategy also includes a way to track the company’s output, evaluating how it is performing in relation to the targets that were set prior to launching the strategy. This helps you to stay on track with deadlines and goals, as well as budgetary concerns.

10 business strategy examples

1. Cross-sell more products

Some organizations focus on selling additional products to the same customer. Cross-selling works well for office supply companies and banks, as well as online retailers. By increasing the amount of product sold per customer, you can increase the average cart size. Even a small increase in cart size can have a significant impact on profitability, without having to spend money to acquire more new customers.

2. Most innovative product or service

Many companies, particularly in the technology or automotive space, are distinguishing themselves by creating the most cutting-edge products. In order to use this as your business strategy, you will need to define what "innovative" will mean for your organization or how you’re innovative.

3. Grow sales from new products

Some companies like to invest in research and development in order to constantly innovate, even with their most successful products. This type of strategy involves introducing new products into the market and updated products that are able to keep up with trends.

4. Improve customer service

This can be a good business strategy if your business has had a problem delivering quality customer service. Some companies have even built a strong reputation for having exceptional customer service. Usually, companies have a problem in one specific area, so a business strategy that’s focused on improving customer service will usually have objectives that center around things like online support or a more effective call center.

5. Cornering a young market

Some large companies are buying out or merging competitors to corner a young market. This is a common strategy used by Fortune 500 companies to gain an advantage in a new or rapidly growing market. Acquiring a new company allows a larger company to compete in a market where it didn’t previously have a strong presence while retaining the users of the product or service.

6. Product differentiation

Product differentiation is a common business strategy, especially for business-to-consumer (B2C) businesses. They can differentiate their products by highlighting the fact that they have superior technology, features, pricing or styling.

7. Pricing strategies

When it comes to pricing, businesses can either keep their prices low to attract more customers or give their products aspirational value by pricing them beyond what most ordinary customers could afford. If companies plan to keep their prices low, they will need to sell a much higher volume of products, as the profit margins are usually very low. For companies who choose to price their products beyond the reach of ordinary customers, they are able to maintain the exclusivity of their product while retaining a large profit margin per product.

8. Technological advantage

Obtaining a technological advantage, you can often achieve better sales, improved productivity or even market domination. This can mean investing in research and development, acquiring a smaller company to gain access to their technology or even acquiring employees with unique skills that will give the company a technological advantage.

9. Improve customer retention

It’s generally far easier to retain a customer than spend money to attract a new one, which is why this is a great strategy if you see opportunities for improvement in customer retention. This strategy requires you to identify key tactics and projects to retain your customers.

10. Sustainability

You could launch an entire business strategy aimed at increasing the sustainability of your business. For example, the objective could be to reduce energy costs or decrease the company’s footprint by implementing a recycling program.


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