There are three basic types of strategies: differentiation, low-cost and focus or niche.
- Differentiation strategy: To differentiate your product or service from your competitors, you must make it appear different in some meaningful way. This can be based on quality, reliability, innovation, level of service or product features.
- Low-cost strategy: This is self-explanatory. When you are unable to differentiate your product from someone else's (e.g., it is a commodity), the purchase decision is often based on price. The focus then becomes on controlling costs and reducing overhead in order to maintain margins.
- Focus or niche strategy: The focus strategy will involve either differentiation or low-cost, and it will target one or more specific areas of the larger marketplace. It will not attempt to compete across the board, nor be all things to all people. For small businesses with limited marketing funds and resources, it is important to choose these niches where you have the greatest sustainable competitive advantage.
To select the most appropriate strategy, consider the following questions:
- What is or what should be your business mission?
- What investment level can you make in the strategy? Which is the most cost-effective for your long-term goals?
- What is your sustainable competitive advantage? Which type of strategy (differentiation, low-cost or focus) best supports your SCA?
- Which strategy best fits your strengths, objectives and core values?
Examples of how this might apply to a product or service business are given below. Notice how the product or service offering reflects the values of the owner.
Chef's own salad dressing
Industrial cleaning business
|Mission||To bottle and sell well-known restaurant chef's private-label salad dressing to 1) begin product line and generate revenue and 2) publicize and increase name recognition of restaurant||To become the largest cleaning service of office buildings in the greater Seattle area|
|SCA||Award-winning chef developed this house-favorite recipe and uses it nightly in his famous high-end restaurant.||All bonded, legal-resident employees. Provides highest quality with lowest cost.|
|Core Values||Aesthetics, leadership, independence||Honesty, wealth, service/contribution|
|How Core Values Are Honored||Beautiful packaging and highest-quality ingredients. Branded products will contribute to long-term financial independence and enhance restaurant recognition.||Only using legal residents (even though illegal aliens would work for less). Carefully managing overhead, through computerized scheduling, multilingual checklists and other economies of scale. Helping the immigrant community by providing employment benefits, which also minimizes turnover.|
|Marketing Strategy||Focus strategy: gourmet cooks and purchasers of high-end specialty food items. Distribute through gourmet shops, online gourmet retailers, the restaurant and through its Web site.||Low-cost strategy. Highest-quality service for lowest cost.|