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Competitive strategies to consider for SME’s and new start-ups

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If you’re looking to start up your own business and gain a competitive edge, there are lots of potential strategies you can use.

For many businesses, including those that have achieved massive success, Porter’s generic competitive strategies are highly applicable and effective.

Here, we’ll look at these competitive strategies and how they can be applied to businesses today.

Cost leadership

One of the most popular and effective strategies used by businesses is cost leadership. With this method, businesses focus on providing services to those on a budget. They keep their overheads as low as possible, helping them to offer the cheapest prices. Their aim is to gain a bigger market share by remaining cheaper than their competitors.

Cost focus

A similar strategy you can follow is the cost focus method. Unlike cost leadership, this strategy focuses on a smaller market segment. Businesses offer a low-cost advantage, providing a range of budget and high-cost products.

Tyre Shopper is a great example of a business following this strategy. Their cheap tyres are the key to their competitive advantagehelping them to attract budget-shoppers.

Differentiation

If you don’t want your start-up to focus on cost, you could focus on differentiation instead. This competitive strategy consists of providing unique and different products. Apple is a good example of a modern business focusing on differentiation which has helped it to become one of the most successful companies in the world.

The only potential problem with this method is that you may need to invest a lot of capital into research and development. Your products need to be different to your competitors. The plus side to this is that you can charge a higher price for products that are different to the rest.

A general differentiation strategy looks to dominate the main market, much like the cost leadership strategy.

Differentiation focus

Finally, the differentiation focus strategy targets a smaller market segment. Businesses using the strategy aim to create unique products for specific groups of people. For example, they may focus on products which cater to left-handed people. Or it could be a craft beer company offering specialised beers.

Like the standard differentiation method, this one also allows companies to charge more for their products. If you can create something different to your competitors, you can charge a more expensive price tag. Again, you’ll also need to spend more on product research and development with this method.

These are the four general competitive strategies businesses can use as outlined by Porter. As you can see, you can focus either on cost or innovation. Both types of strategies can deliver excellent results. However, it is important to understand your options so you can choose the best strategy to match your requirements.



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