Competitive strategy

Competitive strategy The competitive strategy refers to the set of decisions and guidelines taken by a company or organization with the aim of achieving superior competitive positions with respect to other companies present in the sector, ie the competitive strategy is the way in which the company will create advantages competitive with the rest of companies.

Once done the external and internal analysis of our company through the different techniques available (Porter diamond, PEST analysis, SWOT analysis, model the 5 Forces ...) we are able to formulate the appropriate strategy that allows us to increase our competitive position of the rest of companies present in the sector.

For the formulation of such competitive strategies, Michael Porter proposes 2 basic strategies to be followed by any company:

Porter also proposes a third strategy called Focus, which can be combined with any of the 2 basic strategies mentioned above.

Costs Leadership

The main objective of the cost leadership strategy is that a certain company will have lower costs of the products / services of its competitors.

The company that manages to lead the cost will obtain higher profit margins than its competitors, allowing itself even to lower the price in such a way that its competitors enter negative margins (losses) while they maintain a certain margin of profit, forcing their competitors to retire from the market.

The companies that opt for this competitive strategy focus their efforts towards:

Companies such as Ikea, Mcdonald, Primark or the Ryanair airline are clear examples of multinationals whose competitive strategy based on cost leadership has allowed them to conquer a good part of the market where they operate.

On the other hand, it should be clarified that the cost leadership strategy is not intrinsically linked with low-cost companies, there are many companies that have developed highly productive models that compete with other less productive, obtaining higher profit margins.

Differentiation

The main objective of differentiation strategy is to provide the product / service with a characteristic of value perceived as unique by the client, in such way that the company obtains a competitive advantage for which the client is willing to pay more.

Under this strategy, companies focus their efforts on improving any innovative aspect, design, quality or customer service.

In order for the differentiation strategy to succeed, the following 3 conditions must be met:

Technology innovation companies such as Apple or Tesla, companies with a high brand image such as Rolex or Ferrari, companies with clear customer orientation, such as the Ritz-Carlton hotel chain, are examples of companies that have opted for a differentiation strategy.

Focus

Focus strategy is based on the selection of a segment or segments of the market in such a way that the company is focused to the maximum to compete in it, either through cost leadership strategies or differentiation strategies.

Under this strategy, the company makes an initial effort in the analysis of all the segments that make up the market, detecting niche markets that are even unknown or unattended by its competitors.

The textile group Inditex under its different clothing brands (Zara, Massimo Dutti, Kiddy's club, Pull and Bear ..) is a clear example that employs the segmentation strategy and creates companies focused on these market segments in some cases under strategies of leadership in cost and others under strategies of differentiation.

Hybrid strategies

For Michael Porter companies have to choose between one of the 2 basic competitive strategies (cost leadership or differentiation), being inefficient those who opted for both strategies at the same time.

Over time different studies on competitive strategies carried out by companies from different sectors, showed that organizations that work on hybrid strategies (cost leadership and differentiation at the same time) obtained better results than those that used a single competitive strategy.

So the hybrid strategies turned out to be attractive for all companies, but at the same time the same studies showed that the success rate of these companies was much lower than those that opted for a single strategy, so companies that opted for hybrid strategies they had a lower probability of survival over time but were more likely to obtain high returns if they survived.

Subsequently, economists Cliff Bowman and David Faulkner expanded the model of competitive strategies of Michael Porter in his strategic clock.


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