Competitive Strategy - Definition, Importance, Types & Example
What is Competitive Strategy?
Competitive strategy is a thoroughly researched & planned long term strategy where a company analyzes factors like costs, differentiation, focus & efficiency, which can then help the company gain an upper hand over its rival companies & products over a period of time. It is aimed at creating defensive position in an industry and generating a superior ROI (Return on Investment). Such type of strategies play a very important role when industry is very competitive and consumers are provided with almost similar products. One can take example of mobile phone market.
Before devising a competitive strategy, one needs to evaluate all strengths, weaknesses, opportunities, threats in the industry and then go ahead which would give one a competitive advantage. Understanding competition, studying customer needs, evaluating their strengths & weakness etc. are all an important aspect of marketing strategy. Companies can study & evaluate on the basis of their market share, SWOT analysis etc., which would eventually help them drive business & sales revenue.
Importance of Competitive Strategy
In the race to bring products which meet the customers' needs, the companies devise a lot of strategies in terms of product improvement, pricing, values, benefits etc. but the reality is that the competitors start coming when the market segment becomes lucrative and viable. At that time, a company needs a well devised competitive strategy to stay a front runner and earn profits. Now to do that a company can do a lot of things.
They can offer products which are cheaper than the competitors. They can offer products which provide value which no other competitor is providing. There are 4 types of such competitive strategies which a company can use to gain that edge in the market full of competitors.
Working on the product or service without a proper competitive strategy is not a sustainable way of working as eventually at some point a competitor would start offering same features at a lower cost or offer more features at the same cost. Hence a well planned competitive strategy is very important to stay strong in the market. There are many types of strategies.
4 Types of competitive strategies by Porter
According to Michael Porter, competitive strategy is devised into 4 types:
1. Cost Leadership
Here, the objective of the firm is to become the lowest cost producer in the industry and is achieved by producing in large scale which enables the firm to attain economies of scale. High capacity utilization, good bargaining power, high technology implementation are some of factors necessary to achieve cost leadership. e.g Micromax
2. Differentiation leadership
Under this strategy, firm maintains unique features of its products in the market thus creating a differentiating factor. With this differentiation leadership, firms target to achieve market leadership. And firms charge a premium price for the products (due to high value added features). Superior brand and quality, major distribution channels, consistent promotional support etc. are the attributes of such products. E.g. BMW, Apple
3. Cost focus
Under this strategy, firm concentrates on specific market segments and keeps its products low priced in those segments. Such strategy helps firm to satisfy sufficient consumers and gain popularity. E.g. Sonata watches
4. Differentiation focus
Under this strategy, firm aims to differentiate itself from one or two competitors, again in specific segments only. This type of differentiation is made to meet demands of border customers who refrain from purchasing competitors’ products only due to missing of small features. It is a clear niche marketing strategy. E.g. Titan watches
Without following anyone of above mentioned competitive strategies, it becomes very difficult for firms to sustain in competitive industry.
Advantages & Disadvantages of Competitive Strategies
There are several advantages of having a good competitive strategy. Some of them are:
1. A good strategy helps a company focus on its own strengths by being better than the competitor in terms of price, features, benefits etc.
2. A company can learn from competitors to offer better services, stronger distribution as well as position itself uniquely as compared to its competitor.
3. A sustainable & well evaluated competitive strategy can enable a company to gain advantage by ensuring reduced product costs & higher margins.
However, there can be certain disadvantages of comparing yourself with competitors:
1. During constant comparison with competitors, a company forgets its only unique value proposition, and unknowingly becomes a weaker version of its own competitor.
2. Competitive strategy can make a company over-analytical & over-critical at times, and hence can hamper its own growth & operations trying to beat competition.
Examples of competitive strategy
There can be several examples based on the four parameters given by Michael Porter. Some examples are given below:
1. Cost leadership: Micromax smart phones and mobile phones are giving good quality products at an affordable price which contain all the features which a premium phone like Apple or Samsung offers
2. Differentiation leadership: BMW offers cars which are different from other car brands. BMW cars are more technologically advanced, have better features and have got personalized services
3. Cost focus: Sonata watches are focused towards giving wrist watches at a low cost as compared to competitors like Rolex, Titan, Omega etc.
4. Differentiation focus: Titan watches concentrates on premium segment which includes jewels in its watches.
Hence, this concludes the definition of Competitive Strategy along with its overview.
This article has been researched & authored by the Business Concepts Team. It has been reviewed & published by the MBA Skool Team. The content on MBA Skool has been created for educational & academic purpose only.
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