Figuring out the right business strategy for your company can provide it with a competitive edge. Additionally, it supports you in making wiser decisions for your organisation that tie directly in with overall objectives.
Generally speaking, there are three main strategy types for business. What are they, and how can you apply them within your company?
The 3 types of business strategy
Understanding what strategy your business needs to guide it forward requires knowing certain aspects about it. While considering the following three business strategies, think about your customer base as well as your internal processes.
What sets your business apart from others in the market? A differentiation strategy focuses in on your competitive advantage and how you can use it to grow. It's about identifying what makes you unique. Is it:
- Your company culture and ethos.
- Unusual products or services you offer.
For example, Lush uses a differentiation strategy where it targets eco-friendly customers who want to know that their beauty products are sourced and made ethically. They hand make everything, tell you what's in their products and where they source their ingredients from, all tactics which help them stand out from their competitors while appealing to a unique audience desire.
Lush understands that their competitive edge comes through their commitment to social and corporate responsibilities.
Amazon is continuing to strengthen their #DifferentiationStrategy with the purchase of mesh router company, Eero. This strategy is effective because the market for technology is always changing, and Amazon wants to keep their customers interested. #ECU4842 https://t.co/3hgXIG6RL4
— HaileyStafford (@HaileyStaffor11) February 11, 2019
You'll generally find large retailers using a cost strategy. As the name suggests, this approach is all about making operations and products as economical as possible.
Businesses using a cost strategy focus on creating incredibly efficient processes, increasing productivity levels and minimising expenses at every level achievable. The savings that result are passed on to customers, allowing them to enjoy lower prices for products and services.
However, while one aim is to reduce what the customer has to pay in order to keep them returning, it's also important that your organisation retains some of the savings for you to benefit long-term from a cost strategy.
The focus strategy is generally considered a hybrid between the differentiation and cost approach to business. It targets a unique niche that your company can serve effectively, while managing costs effectively.
Instead of simply competing on price, a business with a focus strategy also narrows in on selling only to a small segment of the market. Sometimes, it's possible to specialise to the extent where your organisation is only one of a handful actually delivering services or products to that niche market.
The other strategy types to consider
Your business strategy impacts how you create a game plan for other areas of your organisation.
Your business strategy impacts how you create a game plan for other areas of your organisation. For example, you need your marketing strategy to be inline with your focus to build an effective campaign and develop brand awareness. You don't want to focus on prices when it's actually the unique products you offer clients that's the real draw.
When creating a growth strategy knowing your overall business strategy helps as well. A cost focused business wants to know how they can scale their processes without disrupting their gross margins. A company with a differentiation strategy, however, is more likely to care about adding unique products that build on their competitive advantage.
Sometimes businesses will also consider an acquisition strategy, if they want to buy out competition and gain a bigger market share.
Why is business strategy important?
A business strategy is essential for many reasons.
- Clear aims – It helps you figure out what you want to focus on, instead of spreading your business's resources too thin. Being perfect in all areas is impossible. However, narrowing it down to one or two features allows you to excel in them.
- Goals and systems – A strategy helps you identify goals that align with your long term aim, which you can break down into clear, definable steps. It also allows you to develop systems that support your strategy – for example, always checking where you're sourcing supplies from, if being ethically focused is your market differentiator.
- Identifies strengths – Clarifies what you're good at and what you need to work on, which is essential for progress.
- Market share – A part of developing your strategy is evaluating your marketplace. Understanding the type of competition you face and how you fit into the picture is vital for deciding on the best way to progress.
Figuring out how to guide your business into a strong future isn't easy. However, a business strategy assists you in creating a solid foundation to build from. If you'd like help implementing the right strategy for your company, reach out to WMC Accounting today. We're here to help our clients achieve their goals.