Long-term success isn’t a goal, it’s an outcome of good strategy.
Every business needs an edge to cut it. Every business is also unique. Even so, there are philosophies behind the various business strategy types, and we’re here to break the basics down.
Business Strategy Types: The Basic Framework
Stripped to the fundamentals, the framework for business-level strategy is deceptively simple. It can be categorized into three approaches:
- Cost Leadership
- Differentiation
- Focus
Cost leadership strategies concentrate on beating out the competition on price. Everybody loves a bargain. Differentiation strategies try to do something different by standing out from the crowd.
Finally, the focus approach is the tactic of narrowing the target audience and offering a highly specialized product. It’s the niche approach.
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The 5 Strategy Types
Combine cost leadership, differentiation, and focus, and you arrive at the five core strategies for business. We’ve outlined each in turn below.
These strategies are oblique – so see the OGSM framework for steps to turn abstract philosophy into actionable steps.
Cost Leadership
As we outlined above, cost leadership means offering the lowest prices. This is generally achieved by cutting costs at every juncture. Slimming staff, outsourcing product chains, and lowering production costs are all vital.
Cost Leadership typically suits large organizations.
They can best exploit economies of scale to hit high points in their revenue goals. Whether it’s an online business like Amazon or a brick-and-mortar chain like Walmart, cost leadership is effective in attracting a wide audience.
Over time, this can lead to market domination, but there is a high risk associated with overhead costs while scaling. Low margins mean that huge capital is required for this approach to work.
Differentiation
Differentiation is a great approach for startups with a unique product. Most startups concentrate their effort on solving a problem or pain point nobody else has.
Apple’s approach falls under this remit. Their products aren’t cheap, but they’re set apart from the rest.
Want proof? Differentiation is so essential to Apple’s approach that it was the cornerstone of their “think different” campaign. The one that restored their reputation and propelled them into the 21st century’s hall of tech giants.
A winning product creates brand loyalty while permitting higher prices. However, if the niche is too narrow or the startup costs too high, the differentiation approach becomes untenable.
Focused Cost Leadership
This approach combines a focused niche with low prices. Usually, this approach is used for a specific subset of products or services.
Small budget airlines are a good example. They typically rely on local airfields and smaller aeroplanes to lower their overhead costs.
Focused Differentiation
Focused differentiation strategies target a segment of the market with a unique product. Often, it applies to high-end goods with premium price tags attached.
Porsche, for instance, adopts a focus differentiation approach. They market their niche brand of sports cars to a market of upper-class buyers.
Integrated Cost Differentiation
With a combination of focus and low cost, the integrated strategy is a midpoint between the two. It’s generally seen as a more adaptive approach.
However, this comes with a cost. Businesses taking the hybrid route aren’t able to compete as effectively on price, nor on having standout products.
Consider What’s Best for You
The business strategy types listed here are just that: approaches. No single approach is better than another. You’ll need to think like your customers and analyze the market from afar to judge which of them best suits your business.
If you found our article insightful, consider reading more from our business category.
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