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Cost Leadership, Differentiation, Focus

How critical are ‘strategies’ for a business? Well, it’s just an understatement to say that strategies are critical to business success. You must have a proper strategy in place, if you want to stand tall amidst competition. Here, we will discuss different types of business level strategies put forward by Michael Porter, a highly regarded professor from the Harvard Business School.

The types of business level strategies defined by Porter are as follows-

Cost leadership

By employing a strategy based on cost leadership, a business can reduce its operating costs to below the industry-average. These savings can then be passed on to the customers. The business can introduce low-priced services or merchandise to gain an edge over competition, not compromising on their profit margin, at the same time.

Business strategies

Businesses that employ this strategy successfully are those who are capable to invest heavily on technology and have efficiency in logistics. They also have access to low-cost labor and materials. This enables them to minimize operational costs and ensure better margins.

Differentiation

Businesses that employ this strategy can gain a competitive advantage by offering unique service/product features to their customers. Thus, they can justify higher pricing by adding better value to their offerings, as compared to the competition.  As the customers invariably get a better experience or value, they do not mind paying a premium price. This will also help them to dig into the market shares of their competitors.

Focus

Businesses that leverage this strategy employ differentiation or cost leadership in a niche or focussed market segment. But, before doing so, they understand the dynamics of the target market and assess the unique needs of the customers therein. They offer the customers a definite cost advantage by employing differentiation in their production and delivery system for the target market.

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