As a business owner or entrepreneur, you would have at some point thought about why some businesses collapse. The answer lies in their inability to keep up with the stiff competition in the market. Therefore, companies fundamentally seek avenues to survive the competition by developing a competitive strategy. While there are a number of strategies you can implement, here is how you know which is best for your business.
What is a competitive strategy?
A competitive strategy is a long-term plan that a business creates to gain a competitive advantage. The essence of seeking a competitive advantage is to secure a safe business vantage point. As a result, most companies actively seek conditions that put them in a superior position relative to others. It is a situation of having the upper hand in business due to advantages.
A Competitive strategy is more or less the route towards achieving a competitive advantage. It follows that companies develop these strategies to gain a competitive advantage in business. So most economists and business analysts use both terms interchangeably. However, there exists a slight and subtle difference. Although in a context, they can mean the same thing. An additional aim of developing a competitive strategy is to increase the business return on investment (ROI).
Types of Competitive strategy
Three strategies exist for a company to gain a competitive advantage. These are cost leadership, differentiation, and focus.
A company that offers high-quality services and goods at a cheaper rate/cost is more likely to stand out in the competition. Human behavior shows that individuals are more likely to patronize a firm offering the lowest price than their more pricey counterparts. Thus, any enterprise offering quality service at a cheaper cost is operating on cost leadership. Additionally, a firm can only operate cost leadership as a competitive financial strategy when it reduces production costs. Practical moves to achieving cost leadership may include: bulk buying of raw materials, organically and internally manufacturing raw materials, recycling, etc.
A good number of companies use differentiation to gain a competitive advantage. Usually, it is more about their products and services. In which case, a firm tries to give customers undeniable reasons to patronize them at the expense of their competitors. Simply put, differentiation in business is known as product differentiation. By this, companies stand out from the competition by distinguishing their products. Valuable areas to effect differentiation are product design, packaging, pricing, and marketing.
This particular competitive strategy seeks to narrow down company objectives in the strictest sense. Here the firm is concerned with operating on a targeted market segment that is narrow. There are two versions of focus as a competitive strategy. First is Cost-focus, where the company pays more attention to the lowest cost of production in a narrow market. And the second is differentiation-focus, where the attention shifts to differentiating products/services in a small market segment.
Competitive Strategy Examples
So how do these business tactics apply to the provision of professional services? As it turns out, with a significant lot of hardship for many businesses. A company’s ability to differentiate itself typically depends on how a potential customer views the firm’s proficiency in addressing a certain business difficulty. Let’s examine a few illustrations of competitive strategy.
Extensive cost advantage
Using talent from a lower-paying region or nation is known as “offshoring” in the professional services industry. For instance, many businesses hire Indian programmers to code their software. Unfortunately, this tactic is relatively easy to copy, making it difficult to sustain a cost advantage over time. Your point of uniqueness will be lost if competing businesses establish their own outsourcing capabilities. The cost advantage may diminish over time as a result of rising wages.
Niche cost advantage
By focusing on a certain specialty, you are trying to gain a cost advantage in this situation on a smaller scale. For instance, you might target a certain niche, such as credit unions, rather than the entire market while offering low-cost software coding. In this case, you simply need to maintain the lowest price in the credit union market, not in every market. This example focuses on an industry niche, but a comparable strategy could, for instance, target a geographic niche.
Let’s assume that your company has a differentiating strategy that appeals to a wide market. When all of your rivals charge by the hour, for instance, you might be able to charge a fixed fee because of your business strategy. Naturally, it might be difficult to maintain these kinds of advantages because rivals frequently steal ideas that offer significant advantages. Those born of skill are perhaps the most enduring differentiators. Many businesses use these broad differentiators by becoming known for particular types of expertise.
Check Your Own Competitive Strategy
Since these are crucial strategic choices, it is advisable to confirm your choices before putting them into action. Testing the rivalry strategy is one strategy. Test it out on a few potential customers to determine if it provides you with the advantage you need. Recognize that since the entire approach is not yet in place, its effectiveness may be reduced. You should nonetheless gauge its likely impact.
But not every tactic can be tried out before being used. The cost can simply be too high. Instead, you may carry out a validation study to model the effects of your plan. For instance, you could ask your research company to speak with potential customers to see how they would react to changes. A validation study can reduce possible risk relatively rapidly and with fewer staff resources, however it is not as effective as a real-world test.
It is important to make plans for how you will carry out and sustain your strategic choices when you have confirmed that they are sound.
Formulate A Plan For Implementation
It’s possible that your company has already completely utilized some competitive strategy advantages. Your job in those situations is to concentrate on explaining those advantages to the market. This component of a strategy is frequently referred to as a marketing or brand-building strategy. Target audiences, messaging, communication strategies, budget, and timeline are the main concerns of this plan.
How to develop your own competitive strategy
Developing a competitive strategy is different for every company and relative to the nature of the business. Thus, there are no laid down rules for coming up with a competitive strategy. However, there are three steps to take in coming up with a great strategy.
Study your target market and competitive environment
Research is the underground work or homework. It is challenging to create a competitive strategy without research. By research, you need to study all aspects of your business in relation or direct contrast to others. You could also proceed by asking what ways to create a marked difference between your business and the others that make up the competition. This study will lead you towards crafting out possible markers that distinguish your firm from the others.
An excellent way to go about this study is to conduct a SWOT analysis. This analysis means taking into account; the strength, weaknesses, opportunities, and threats of your business. The results of your SWOT analysis are enough for you to move on to the next step of developing your competitive strategy.
2. Test the waters
Testing the waters as a means to achieving a competitive strategy is all about going slowly. After conducting your research and arriving at an understanding of how your business differs from others. It becomes imperative to begin a hypothetical implementation of the data collected. Using the SWOT analysis as your guide, you might want to start by tweaking a few things in your firm. An Example is reducing the turnaround time because you have acquired an automated device. And increase the price slightly to show quality and class because of the newly acquired automatic equipment. The distinguishing factor here is the willingness to proceed slowly. And to observe the result of your initial research. It is a system of validating your strategies.
3.Lunch the full-scale action plan
This move is a full-scale strategy to achieve a competitive advantage. By this, you must have done your research and tested the hypothesis. At this stage, you are somewhat aware of what works for your firm and what does not. This idea or knowledge is from your initial move to test the waters. The main activity with the full-scale action plan is marketing and branding. Additionally, a high focus is placed on the target audience to make them dependent on your production.
How Paystubsnow develops your competitive strategy
One of the easy means to build a competitive Strategy is by automating major everyday processes. These could be simple things such as quick invoice creation and delivery. Using a service provider like Paystubsnow can help you automate your invoice process. You can generate invoices and even go further to create paystubs for employees and other major financial documentation needed for day-to-day life. In addition, electronic financial documents add to your competitive advantage through automation. Because customers are getting faster, easier, and more efficient options.
What is a competitive strategy?
It refers to all long-term plans a company sets up to gain a competitive advantage. In other words, one needs a competitive Strategy to gain a competitive advantage. And in most cases, they involve marketing, branding, and publicity of the business. When a company implements several methods to win more customers above its competitors, it is a competitive strategy.
What is a competitive advantage?
Competitive advantage refers to the position a company occupies above its competitors. It includes all activities and features that set a firm apart from its competitors. The effect of competitive advantage is a return on investment (ROI).
What is SWOT analysis as a competitive strategy?
It is an analysis of the firm’s strengths, weaknesses, opportunities, and threats. It is the perfect benchmark for crafting out an effective competitive strategy. As a rule of thumb, most firms accentuate their strengths and downplay their weaknesses. Then leverage opportunities while dealing with any possible threat to the survival of the business.