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Every business has to choose an appropriate strategy in order to succeed. It needs to place itself in the right position in the marketplace so that it can compete with other companies. This is known as strategic positioning. Let's examine this concept in more detail.
Strategic positioning is a position of a business within a marketplace. It refers to how a company sets itself apart from the competition and delivers a product to the customers.
Chanel is considered to be one of the most expensive and luxurious shops in the world, whereas H&M is a relatively cheap multiple store. This way, Chanel’s value is very high and H&M’s value is low.
No matter what an enterprise’s position is, it can still compete and provide a competitive advantage. However, in order to do it, not only do they have to be different, but also differentiated.
According to Porter’s generic strategy matrix (see Figure 1 below), all the markets operate in the same way. They can be segmented in two ways: narrow and broad scope, cost and differentiation source of competitive advantage. It is essential to use the generic strategy matrix as it has a huge influence on choosing and analysing a strategy. There are three types of strategies depending on scope and source of competitive advantage.
Figure 1. Porter's Generic Strategy Matrix, StudySmarter
Firms choosing the cost leadership strategy aim to become the low cost producer in the industry. They try to reduce costs wherever possible and offer customers products at the cheapest price. They typically take advantage of economies of scale and catch up on quantity, not quality.
A company using the cost leadership strategy is Asda. It offers numerous products at a relatively low price.
Here companies try to make their product differ from the competition. They aim to offer customers something which is unique and innovative. In order to gain a competitive advantage, they need to do the research to make sure they produce something which will draw customers’ attention. They focus on quality instead of quantity.
A business using the differentiation strategy is Sainsbury’s. It offers a variety of products at regular prices.
As the name suggests, businesses using the focus strategy focus on a specific segment of the market and consequently, their scope is relatively narrow.
The focus strategy has two variants:
- Cost focus
- Differentiation focus
The cost focus is when a company aims to provide the cheapest products within the industry whereas the differentiation focus is when it provides well-specified products.
Firms using the focus strategy are Aldi and Waitrose. Aldi offers essential groceries at the cheapest price whereas Waitrose offers groceries that are more sophisticated.
Let us see a bride analysis with the factors influencing the positioning strategy. There are numerous factors that may influence an organisation's positioning strategy.
Oftentimes there are already existing companies that would be impossible to beat by a startup. For example, Ryanair being a low fare airline has so many customers that probably no one would be brave enough to establish an airline of the same type competing with it.
Some people might have some special operational skills which might be of an advantage when establishing a company. These skills may either result in producing something which is revolutionary (differentiation strategy) or cheap to manufacture (cost leadership strategy).
Entrepreneurs might enter a market where they think they will have a high market share and consequently, high profits. They may give up sectors where the chances to succeed are low and move into the ones with better prospects.
Companies have to be differentiated in order to compete and provide a competitive advantage within the marketplace.
Cost leadership strategy, differentiation strategy and focus strategy.
Strategic positioning is a position of a business within a marketplace. It refers to how a company sets itself apart from the competition and delivers a product to the customers.
The strategic positioning of a company is dependent on how it positions itself within a marketplace. Companies can either choose to set themselves apart by becoming low-cost producers in the industry (cost leadership), make their products stand out from competitors (differentiation strategy), or focus on a specific segment of the market (focus strategy).
There are three main positioning strategies including cost leadership, differentiation, and focus strategies. Within focus strategies, there are two further strategic variants which are cost focus and differentiation focus. Cost focus is when a company aims to provide the cheapest products for the target segment, whereas differentiation focus is when it provides specific products for the target segment.
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