Basic competitive strategies

This topic focuses on gaining and maintaining a competitive advantage through a successful strategy and optimal value chain management. The study of the problems of creating and maintaining a competitive advantage is devoted to the fundamental work of M. Porter, Competitive Advantage. This topic is largely based on the material in this book. Consider also the main types of competition strategies, the advantages of cooperation strategies (strategic alliances and partnerships), merger and acquisition strategies. One chapter is devoted to strategies for vertical integration and the attraction of external resources. In addition, it will be about creating and maintaining a competitive advantage through offensive and defensive actions, respectively.

Competition strategy, as noted earlier, includes a set of techniques and initiatives aimed at attracting and satisfying customers, confronting competitors and strengthening market position. The concept of a competitive strategy is narrower than the concept of a business strategy, because the latter, in addition to the competition methodology, includes the actions and plans of management to solve the entire range of strategic tasks. The basis of a successful competitive strategy is a stable competitive advantage, expressed in superiority over competitors in the number of customers and in the ability to counteract the influence of competitive forces. Among the numerous ways to achieve a competitive advantage, the main ones are the offer of quality goods at low prices, high-quality goods at high prices, goods with the optimal combination of price, quality, consumer properties, service level and other characteristics.

The purpose of the competitive strategy is to achieve superiority over competitors in providing consumers with goods and services in demand and thereby gaining a competitive advantage and market leadership. The core of the company’s competitive strategy is the internal activity of providing a higher consumer value than that of competitors. In addition, the competitive strategy includes offensive and defensive actions, the allocation and redistribution of resources to maintain long-term competitive opportunities and an advantageous competitive position, as well as tactical actions taken when market conditions change.

Companies around the world are trying to develop extraordinary competition strategies. Since the company’s competitive actions are developed taking into account the peculiarities of its position in the market and the general situation in the industry, there are countless options and nuances of competitive strategies – competitive strategies as many as competitors. However, in general, it can be said that the differences in competitive strategies are determined by two factors: the goals that the company pursues in the market, and the basis of competitive advantage – low costs or differentiation.

There are five types of competition strategy. The presented classification is proposed according to the book Strategic Management: Concepts and Situations for Analysis, 12th edition: Per. s eng. – M.: Izdatel’skii dom «Williams», 2002. – pp. 164-236., which is a slightly modified system proposed in the book Michael E. Porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors (New York: Free Press, 1980), Ch. 2, p. 35-39, 44-46.:

Cost leadership strategy – attracting customers by minimizing the costs of producing goods and services; The strategy of broad differentiation is to attract customers due to the maximum difference between the company’s products and similar products of competitors; The optimal cost strategy is to increase customer value through higher quality at prices at the level of competitors or lower. (Having chosen this strategy, the company should reduce costs and, accordingly, prices, while maintaining or improving the quality of products.); Focused (niche) strategy based on low costs. Orientation of the company to a narrow segment of buyers and displacement of competitors due to lower production costs; Focused (niche) strategy based on product differentiation. Focusing on a narrow segment of buyers and displacing competitors by offering goods or services that better meet the needs of buyers.

Table 4 shows the distinctive features of the various options for competitive strategies.

Table 4 Resource requirements by component

Distinctive features of various variants of competitive strategies

Distinguishing feature

Cost Leadership Strategy

A strategy of broad differentiation

Best Value Strategy

Focused strategy based on low costs and wide differentiation

Strategic objective

Large market share

Large market share

Sensitive to customer value

A narrow segment of the market in which consumer preferences differ significantly from those prevailing in the market as a whole

Competitive advantage

Cost leadership

Product offering different from competitors’ products

More customer value for the same price

Cost leadership in the market niche served (niche leadership in costs) or giving the product specific properties that are valuable in the eyes of buyers of this segment (niche differentiation)

Assortment of goods

High-quality basic model of goods in several modifications (acceptable quality and limited choice)

A large number of product modifications, a wide selection, an emphasis on differentiating properties

Quality range from medium to high, the number of modifications from several to numerous

Consumer properties and characteristics that meet the specific needs or tastes of this segment of buyers

Priorities in production

Constant search for ways to reduce costs while maintaining the level of quality and basic consumer properties of goods

Giving the product additional value in the eyes of consumers, striving for the superiority of the product

Giving the product additional properties and characteristics at a reasonable price

The product is designed taking into account the tastes and needs of consumers of the serviced segment

Marketing Priorities

An attempt to present as an advantage those properties of the product that provide low costs

Giving the goods those properties for which the consumer agrees to pay. Increase in the price of goods to cover the costs of differentiation

Reducing the price below the price level of competitors for similar products or maintaining the price at the level of competitors with giving the product additional properties – to create a reputation of a company that offers the best combination of price and quality

Analysis of the level of customer satisfaction with a set of properties and characteristics of the product corresponding to the tastes and / or specific needs of the segment

Strategy Support

Combination of low prices of acceptable quality. Maintaining cost advantages is the basis for steady cost reduction at all levels of the value chain

Informing about the differentiating properties of the product through trustworthy channels. Emphasis  on continuous product improvement and innovation to maintain leadership. Concentration on the key differentiating properties of the product, their promotion to create a reputation and brand image

Creation of a unique competence in reducing costs while improving the properties of the goods

Superiority over competitors in satisfying the needs of buyers of the selected segment; refusal to develop other market segments or product categories due to possible distortion of the brand’s image

Source. A. Thomson Jr., A. Strickland III Strategic Management: Concepts and Situations for Analysis, 12th Edition: Per. s eng. – M.: Izdatel’skii dom «Williams», 2002. p. 167.