Three Main types of Professional Business Strategies

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A business-level strategy, by definition, is how one utilizes their value to customers to stand out from the competition and boost their business. To win a share of the market, entrepreneurs usually 3 types of business strategies, those are:

  1. Cost leadership strategies
  2. Differentiation strategies
  3. Focus strategies

In this article, let’s understand each business strategy in detail.

1. Cost leadership strategies

Enterprises that pursue cost leadership gain a competitive advantage by reducing operating costs to a level below the industry average. Business owners then pass these savings on to their customers with lower-priced merchandise and services or they maintain average pricing to increase their profit margin.

Successful retailers depend on a cost strategy. Enterprises such as Walmart and Costco excel at economically offering products to their customers. They pass along a lot of the advantages of this economy to their customers in the form of lower prices. Not all the cost savings get passed along to the consumers. A certain portion of the cost savings, achieved through incredibly efficient operations, are retained by the business and, therefore, become profits.

The crucial aspect to note about a professional business strategy of low-cost products and services is that the firm is required to retain a few of the cost savings in order to earn a huge profit level when compared to the competitors. An enterprise must be a low-cost producer and still be able to price products and services at a high enough level so that some of the cost savings can be retained as profits.

2. Differentiation strategies

Enterprises that leverage a differentiation professional business strategy win market share and defend higher pricing by offering a unique product or service features, which are valued by their customers.

Product differentiators often sell a very unusual product or service. For instance, the Nordstrom department store chain, it gives unsurpassed service, by offering a great and high-quality selection of items. However, Nordstrom products cost more. But the consumers happily pay extra too because they get so much more for the amount they paid.

In the case of services, the point of differentiation would be employee courtesy, availability, expertise, and location. Despite being almost identical, products and services can be differentiated with the help of promotions and advertising, however, the advertising for these products should be unique and very appealing.

An enterprise that is based on a differentiation business strategy competes on the basis of the special features of its products or services. The key to make this strategy work is being able to charge the customers more for those special features. Differentiation requires producing increased revenues in excess of increased costs.

3. Focus strategies

Focus strategies involve achieving cost leadership or differentiation within markets, by understanding the dynamics of the market and the unique requirements of the customers within it, cut costs or differentiate the offerings to capture more market share.

This professional business strategy states that in some ways, an enterprise is good about managing costs as well as about differentiating products or services.  As this is a hybrid approach the enterprises choose to take this because it understands a particular audience or niche of customers or category of products. In simpler terms, through this focused approach, an enterprise can serve a particular market better than anybody else. The enterprise is going to be the best at serving a particular niche.

For example, small airlines can offer cheaper rates than their larger, international rivals with access to smaller planes and local airfields for regional flights.

End Notes

The choice of strategies, as well as their implementation, is essential for business enterprises because the choice of strategy will help the enterprises in gaining a sustainable competitive edge and it would also assist in long and short-term business decisions.

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