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The Importance of a Competitive Business Strategy

27 July 2022

While many business owners may have a general business plan, they may not have a specific and measurable competitive business strategy in place. Having a well-defined business strategy is critical to the success of any business, especially in today’s highly competitive marketplace.

There are many benefits to having a comprehensive and effective business strategy. Throughout this guide, we’re going to take a look at the importance of competitive strategy, some different types of competitive business strategies and how you can develop your own competitive business strategy. 

Hopefully, by the end of this guide, you’ll have a better understanding of the importance of competitive strategy and how it can benefit your business.

What is a Competitive Advantage in Business?

A competitive advantage is any aspect of your business that gives you an edge over rival companies. This could be anything from your product or service offering to your pricing structure or even your location. 

It’s important to note that not all competitive advantages are created equal. Some may give you a slight edge while others could completely transform your business. Different types of advantages may also come with more or less risk than others.

Internal strategies and their competitive advantages are processes that your company does better than your competitors. This could be anything from your company culture to your manufacturing process. External competitive advantages, on the other hand, are things that are based on external or material factors, but give you an advantage nonetheless. 

For example, your company’s distinctive competency could be being located in a prime location or having access to better raw materials. However, it’s important to remember that external competitive advantages can sometimes be fleeting. If you’re the only company in your area with a certain raw material, could your competitors possibly get access to that same raw material, negating your advantage?

How can I sustain competitive advantages?

If you’re looking for effective competitive advantages for your business, it’s important to focus on creating a sustainable competitive advantage that will give you a long-term edge over your competitors. 

Sustainable competitive advantages are those that are difficult or impossible for your competitors to replicate. This could be anything from a unique selling proposition to a patented technology or process.

To sustain competitive advantage long-term you will need a well-planned competitive strategy to help you develop distinctive competencies and maintain a market-leading position. The key is to focus on creating unique value for your customers that your competitors cannot match.

But why? What’s the point of it all? Let’s take a closer look at some of the benefits of having a competitive business strategy.

The Importance of a Competitive Business Strategy

Sustainable competitive advantages give you a chance to build market share and brand equity. 

They also provide some protection against new entrants into the market and help you maintain your profitability even during tough economic times. Additionally, competitive advantages can help you attract and retain the best employees, as they provide a reason for top talent to want to work for your company.

Ultimately, having a competitive business strategy gives you the best chance of achieving long-term success in today’s competitive marketplace. Some further benefits of having a competitive business strategy include:

  • Gaining a better understanding of your competitors and the marketplace
  • Developing long-term goals and objectives for your business
  • Determining the best way to allocate your resources
  • Creating a plan for how you’ll respond to changes in the marketplace
  • Building market share and brand.

How To Create a Competitive Business Strategy

Now that we’ve gone over some of the benefits of creating a competitive business strategy, let’s take a look at how you can create one for your business.

  1. The first step is to understand your competitors and the marketplace. This means taking a close look at who your competitors are, what they’re offering, and how they’re positioned in the market.
  2. Once you have a good understanding of your competition, you’ll need to set some goals and objectives for your business. These should be specific, measurable, achievable, relevant, and time-bound (SMART).
  3. Once you have your goals and objectives set, you can begin to develop your competitive advantages. This is where you’ll need to get creative and think about what makes your business unique and how you can use that to your advantage.
  4. Once you have your competitive advantages in place, you can begin to put together your overall competitive business strategy. This will involve thinking about things like pricing, marketing, and product development.

Creating a competitive business strategy is an important step for any business looking to succeed in today’s marketplace. By taking the time to understand your competition and develop unique advantages, you’ll be well-positioned to build market share and achieve long-term success.

If you’re unsure about creating a competitive business strategy on your own, our Business Strategy Consultants are here to help! We specialise in helping businesses develop sustainable competitive advantages and create winning business strategies. Book a free strategy review today!

Michael Porter’s Four Types of Competitive Strategies

Michael Porter’s four types of competitive strategies outline the various ways in which a company can create a sustainable competitive advantage. The four strategies are:

  • Cost Leadership Strategy
  • Best-Cost Strategy
  • Differentiation Strategy
  • Market Niche Strategy.

These four strategies are known as Porter’s Generic Strategies and are used by organisations to gain a sustainable competitive advantage over their rivals. Let’s take a closer look at each of the strategies.

Cost Leadership Strategy

A cost leadership strategy is where a company seeks to be the lowest-cost producer in its industry. This can be done by either reducing the costs of inputs or by increasing efficiency throughout the organisation. The goal is to produce goods or services at a lower cost than your competitors while still providing customers with a quality product or service.

A cost-leadership strategy works best in broad markets where there are many competitors offering similar products or services. It’s also important to have a good understanding of your costs so that you can price your products or services accordingly.

Best-Cost Strategy

The best cost or cost focus strategy is similar to the cost leadership strategy, however, it focuses on a specific market sector or niche where goods may be offered at a lower price or with unique features. The goal is to offer a quality product or service at a lower cost than your competitors while providing customers with something of unique value.

This strategy works best in a narrow or specific market where you can tailor your products or services to meet the needs of your target market at a low cost. It’s also important to have a good understanding of your costs so that you can price your products or services accordingly.

Differentiation Strategy 

A differentiation focus strategy is where a company seeks to create products or services that are unique and offer value that is not found in the offerings of its competitors. This can be done by either creating new products or services or by improving existing ones. The goal is to offer customers something that they cannot find from your competitors.

This strategy works best in a broad market where there are many competitors currently offering similar products or services. The market differentiation strategy allows you to offer what your competitors don’t and compete on things other than prices, such as quality, customer service, or distinct and unique features.

Market Niche or Focus Strategy

A market niche strategy or focus strategy involves developing distinctive competencies in a particular market or niche and serving that market exclusively. This can be done by catering your products or services specifically to the needs of your target market. The goal is to become the dominant player in your chosen market or niche.

This strategy works best in a narrow or specific market where you can focus all of your resources on becoming the dominant player. When using this strategy, it’s important to have a good understanding of your target market and what they are looking for, as well as what the current market offering is.

Porter’s Generic Strategies are just one tool that organisations can use to develop a sustainable competitive advantage. When choosing which strategy to pursue, it’s important to consider the type of market you’re operating in as well as your own strengths and weaknesses.

Competitive Strategy vs Business Strategy

While a standard business strategy deals with how a company plans to achieve its overall goal, a competitive strategy is concerned with how a company plans to gain a competitive advantage over its rivals.

A standard business strategy takes into account the overall goals and objectives of a company, as well as the resources and capabilities available to it. It also considers the external environment in which the company operates and how it can best position itself to achieve its goals.

Competitive strategy, on the other hand, is focused on how a company can best compete against its rivals. It takes into account the specific actions and decisions a company makes in order to gain a competitive advantage. This may involve creating new products or services, entering new markets, or adopting new, successful business practices to improve output.

When you create a competitive business strategy, you align your business practices with the drive to gain a competitive advantage in your industry. This can be the best way to achieve the results you desire for your company or organisation.

Looking For Support Creating a Competitive Business Strategy?

Our expert Business Strategy Consultants can help you create a competitive business strategy tailored specifically for your company. We’ll work with you to understand your goals, objectives, and the resources and capabilities available to you. We’ll also consider your external environment and how best to position your company for success. 

Why not get in touch today? Or alternatively book a free business strategy review to get started!

Book Your Free Business Strategy Review Today!

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