Business-Strategy-types

Administrative Expert and Creative Writer

The concept of business strategy is not unknown to anyone. But the problem is every time we think about the business strategy, we think about some intense discussion. In this blog, we will go easy. Here, we will try to cover what business strategy is. Also, we will elaborate on the types of business management strategies with some examples of each. This blog will mainly be useful for young learners. If you already have deep knowledge about business strategy definition and types you can read “10 Steps in Business Strategy Formulation”.

What is business strategy?

The word strategy means a ‘blueprint’ to achieve some specific objectives. This blueprint may include any aspiration, plan, decision, and actions to achieve the desired goal. In business, when an entrepreneur outlines the course of actions and decisions to achieve his goal, mission, or vision, it is called a business strategy.

A business strategy is an explanation of all the steps and actions that the business intended to perform to achieve the mission and vision of an organization. In a broad sense, a business strategy is an explication of what a business needs to do, a guideline to help the decision-making process, and a master plan to ensure efficient resource allocation. However, a business strategy is indispensable for an organization. A business plan without a strategy is nothing but a dream. A business strategy helps an organization to understand what it needs to do and what it requires to have in order to achieve the vision. It also fosters the decision-making process.

Types of business strategy with examples

Different people have different points of view regarding the types of business strategy. Stephen L. Nelson, an author of over 200 books, has prescribed three types of business strategy in his article on “Understanding the Types of Business Strategies. In this article, we will cover three types of business management strategies with examples. Theis three types of strategies are

1) Cost-Leadership Strategies

2) Product and Service Differentiation strategy

3) Focus Strategy

1) Cost-Leadership Strategy

When a firm gains the competitive advantage of producing its product or service at the lowest possible cost compared to its competitors is called ‘Cost Leadership Strategy.’ The firm undertakes a cost leadership strategy in order to sustain its leadership position in the market. The main focus of this strategy is to produce products and services at minimum cost and offer them at a lower price. Here are some important points you should know about the cost-leadership strategy –

  1. The firm needs to minimize the production and operational cost to be able to offer products or services at a lower price without affecting revenue. Also, the firm must reduce the costs of other areas like marketing, distribution, and packaging.
  2. This strategy is more suitable for the high value-added or proprietary components and services.
  3. Firms apply this strategy when their targeted consumers are highly price-sensitive.
  4. Cost-leadership and price leadership are not the same. Sometimes, people mixed up cost leadership with price leadership. But there is a slight difference between them. Cost leadership is having the lowest production cost while price leadership is having the lowest price.
  5. Sometimes, firms achieve the lowest production cost by producing massive amounts of products or services.

Example of Cost-Leadership Strategy

To illustrate cost leadership, we can see the strategy of Walmart. You can see it from their tagline which is “Save Money. Live Better”. It clearly indicates that their business strategy is to provide brand products at a lower price. However, their main focus is to minimize operational costs through automation and technology, cut down spending on human resources, work closely with suppliers, etc.

2) Product or Service Differentiation Strategy

Product differentiation strategy means, offering products and services that others do not offer. Firms choose a differentiation strategy when they do not want to compete with a large number of competitors. Differentiation strategy may materialize by introducing a new product or service and/or by adding unique features with the existing. Some important discussions on product or service differentiation strategy are as follows –

  1. In the differentiation strategy, the initial production cost is comparatively high since the products or services are new.
  2. The firm can charge a premium price for its products or services because the competition remains very low.
  3. Differentiation does not necessarily mean the introduction of new products. It can be adding new features with existing products or services.

Example of Product or Service Differentiation Strategy

The world’s renowned brand Apple is a great example of a Product differentiation strategy. In each version, they include a lot of features with their products to make them different and unique from their competitors. Tesla, also differentiate their cars from other brands with a lot of innovative features.

3) Focus Strategy

Focus strategy is also known as niche strategy. Focus strategy means choosing your products or services focusing on a narrow and specific group of people. The main aim of this strategy is to avoid a high competition and choose a product line, geographical area of customer segment where the competition is low. Some important points related to the focus strategy are given below –

  1. Focus strategy is suitable when you are trying to establish a new relationship with your customers.
  2. It needs a lot of research and development to understand the unique needs and wants of targeted customers.
  3. Focus strategy concentrate on the certain needs of a specific customer group.
  4. Moreover, a focus strategy helps an organization to increase customer loyalty.

Rolls Royce is a good example of a focus strategy. Instead of competing with thousands of automobile companies, they have decided to produce cars only for multi-millionaires. They produce luxurious cars which the billionaires can afford only. Similarly, shumukh world’s most expensive perfume brand target only the upper-class people of the society.

Summary

An organization can choose its business management strategies depending on its business nature, position and situation. Selecting the appropriate strategy is very crucial for the business. Also, the proper implementation of business management strategies is equally important. We will discuss the implementation of strategy in another blog. You can share your thought regarding strategy implementation with us so that we can accommodate.

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