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    Categories: Business Management

What are the Three Basic Types of Business Strategies?

People generally say that everything is fair in love and war. Well, business is nothing less than a war. If you want to stay ahead of your competitors, you have to give a good fight and win it. Just the way a warrior sharpens his weapons before getting ready for the battle, a businessman has to design a strategy to take on the competitors.

Understanding Different Business Strategies

All companies have goals and spend every effort on achieving them. Different companies use unique methods of reaching their objectives. This depends on various factors that are peculiar to that company. But all companies generally go through three types of strategies to achieve their corporate goals. It is necessary first to see what are the 3 types of strategy adopted by organizations.

Also Read : What are the Different Kinds of Strategies?

Corporate Strategy

Organizations mainly use corporate strategy to specify their vision and mission. These strategies are passed from the C-suite down to line business managers. These plans will be what causes corporate decisions to be made. This is very important for those companies that have many product lines. The CEO and board of directors will formulate such strategies.

Also Read : How To Break Into The C-Suite Of Leadership

Business-Level Strategy

Business level strategies are used to improve revenue when it remains stagnant. In small organizations, there will be one plan for all their products. Large companies will implement these plans for different business units. All activities and initiatives will be performed only to gain a competitive edge. Among the types of business strategy methods, this one is aimed at revenue growth.

Also Read : Why is a business level strategy important?

Functional Level Strategy

Functional Level Strategy is used at department levels. This will make sure that all corporate and business-level strategies are correctly implemented. This strategy will govern all day-to-day activities. The success of different tasks that lead towards corporate objectives is measured in this function.

Among the different types of strategies in business, we are more concerned with business-level systems as this is most useful for companies that perform well but are unable to grow any further. This procedure is a way to boost their business by getting an edge over competitors.

Also Read : What is a functional strategy in business

What Is A Business Level Strategy?

While corporate strategy talks broadly about objectives like increasing market share or improving brand image, a business-level approach actually gives direction to them. This is more focused than the former and has specific goals to achieve. Various methods like increasing exposure of products, improving quality, rebranding, and tapping new markets are standard methods that fall under the business-level strategy.

Business strategies help companies to move forward instead of remaining at the same level of market share and profits. This type of strategy aims to increase sales and earnings by providing superior value to customers. Organizations achieve this by doing something different from competitors and grabbing the attention of buyers. This is called competitive advantage. Managers must initiate specific actions for implementing business strategies to get the desired results.

Competition in a market can arise due to various reasons. The entrance of a new player is an important reason. Customers generally like to “try” new products, which could take away business from existing brands. Products that are not similar but offering the same benefit to customers can become competitors. The final reason is a normal level of rivalry among companies that manufacture equivalent products.

Also Read : Trending Sales Management Strategies You Should Learn Today

Preparing To Implement Business Level Strategies

1. Get Everyone In The Same Direction

The aim of these strategies is to make sure that corporate objectives are achieved. To achieve this, everyone should understand those goals. All departments must work towards that aim. It is possible that some teams may be straying away from this path. Even a slight change in direction can prevent the strategy from working.

2. Ensure Cooperation

No company can achieve anything without all departments working in tandem towards the common goal. Different employees, including team heads, come from various backgrounds, and it is possible that they are not cooperating perfectly. Managers tasked with implementing the list of business strategies must ensure they all work together.

3. Develop Necessary Capabilities

The advantage of business strategies is that it gives clear direction right down to the level of individuals about what they must do. This means that every individual must possess skills to perform their duties. Those who are responsible for the successful implementation of plans must ensure that these skills are available. Those who don’t have such qualities must be given training.

Since the size and nature of every business are different, there can’t be a ‘one-size-fits-all’ strategy. There are three broad types of business strategies that most strategic management courses in India talk about

  • Cost Differentiation Strategy
  • Product Differentiation Strategy
  • Growth Strategy

Any company that wants a competitive advantage for achieving better sales and profits must follow one of the above methods. So those who aspire to be a business strategists must understand what these are.

Also Read : Developing Digital Marketing Strategy in 2022

Cost Differentiation Strategy

This strategy is all about pricing your product right. It should tempt customers to purchase your products instead of that of the competitors. However, at the same time, the price should not be too low or too high. If it is exorbitant, then customers would not pay for it. It is too low; they may think the quality is poor. Also, keeping prices lower may not cover the cost of production and generate expected revenues. So, price your product in such a way that it is a win-win situation for your business and customers.

Also Read : Components of an Integrated Marketing Strategy

Advantages Of Cost Differentiation Strategy

This method tops the list of business strategies that companies use to boost their sales quickly. It can help achieve a rapid rise in product sales. There are many advantages to following this method which is also called “cost leadership strategy.” This means that the company leads in being the lowest in price. While achieving this position may be difficult without suffering losses, it has many benefits apart from getting more sales.

These companies don’t suffer when there is a recession. There can be various situations like the present pandemic when many people have lost jobs and are in financial trouble. Firms that follow this type of strategy are already famous among people who don’t spend much. As their prices are already low, they will not suffer much sales drop during such challenging situations. In fact, they are at an advantage because more people are likely to favor low-cost products.

A company that is selling at low prices will certainly have achieved low manufacturing costs. This means that they can survive even if there is a drop in sales. They can also be flexible and offer more varieties of products as their costs are low. These companies can also provide discounts when needed. A company that has so much flexibility can easily beat competitors and achieve better sales.

Risks Of Being A Cost Leader

Even though many benefits favor using this type of business strategy, some risks are associated with it. There is always a possibility that another competitor who can achieve lower costs will reduce prices further and gain an advantage. Those customers who are buying because of low prices are more likely to change loyalties to that company. It is not easy being a cost leader for long.

Products that are identified for their low price are not always associated with good quality. This can keep away quality-conscious customers from that item forever. Another risk is rising costs. It is not easy to predict the rise in raw material prices, transport, labor, and other expenses. Any change in these can affect this company badly. Hiking prices to meet increasing costs can result in losing the competitive advantage.

Companies that have chosen this from various business strategy types can use different ways to implement it.

Also Read : Top 4 Global Business Management Strategies

Ways To Implement Cost Differentiation Strategy

1. Increasing Production

This is one way to reduce prices. When a company is manufacturing a large volume, it will also need to procure more raw materials. It will give them leverage with suppliers to reduce prices. They get dominance over vendors. Manufacturing a higher quantity will also reduce overheads per unit. This will further reduce product costs. Because of its volumes, such a firm will also have more power over the market. They can execute orders even if there is a spike in demand.

2. Integrating Advanced Technology

By using advanced technology, it is possible to reduce the cost of production. Machines that will produce more units per hour will bring down production expenses. Integrating such devices with modern technologies will help to reduce production time and cost. This will enable companies to sell their items at a lower price. The latest machinery can help reduce human resources requirements, thus reducing costs further. Modernizing production lines can also reduce product complaints and rejections. Patenting such inventions can prevent competitors from copying these methods.

3. Buying From Raw Material Manufacturers Directly

There are many advantages to buying directly. Many companies buy their raw materials from local suppliers who add their profits to the price. If organizations can buy them from manufacturers directly, they can get them at a much lower price. These firms will not face a shortage of raw materials. They can also become suppliers for these items and use them as an additional source of income. This is one of the business strategy types that one can use for reducing product prices and gaining a competitive edge.

4. Improve Efficiency

Improving efficiency will directly translate to cost reduction. The number of people required for a job can be reduced. Firms will be able to process more orders in less time, improving their deliveries and sales volumes. Being more efficient results in a reduction of wastage which is results in a saving. Better warehouse management can help in reducing space costs. It will also reduce product defects and damages. A reduction in expenses for various processes in an organization can add up to a considerable saving that can be offered to customers.

5. Limit Product Range

The more variety of products a company has, there will be more expenses for promotion. Having different products will also mean less focus on those items that give better returns. Discontinuing certain products that are not very profitable will help to concentrate on core products and improve profits. This can help in reducing prices and increasing volumes for those products.

We have seen ways to implement one of the types of strategy in business that gives companies an edge over competitors by reducing prices. Various ways to achieve this have also been explained above. But a business manager who wants to use this method must know how it can be implemented.

Procedure For Implementing Cost Reduction

To have an effective cost leadership position, organizations must go step by step. It is not enough to implement this once, but they must frequently review this as prices of various items increase over time. Let us see how someone can achieve this successfully.

Also Read : Top 6 Leadership Skills for Strategic Management

Analyze Existing Position

Those who want to get to a cost advantageous position must first know their product costs and what components are included. Every expense incurred in bringing an item to the market must be taken into account. This will not only include raw material and production costs. There are various other expenses like salaries, software costs, invoice printing costs, and recurring payments for utility, etc. All these form components of a product price. They must all be included when calculating an item’s cost.

Also Read : Building Competitive Advantage with Business Management

Check Competitor Costs

The next step is to find out what costs competitors are incurring. It is best to check those items that are priced equally or lower. This will help in finding out ways to reduce costs even if a company doesn’t achieve cost differentiation status. Some competitors may be operating at much fewer overheads. It is worth finding how they are able to do it. Such analysis will help in finding new ways of manufacturing an item at lower costs.

Identifying Cost Reduction Areas

Not every area of a firm provides a chance for cost reduction. Managers in charge of implementing different types of business strategies must find out which functions offer a possibility to reduce costs. Raw materials will be an excellent place to look for cost reduction as there will be many suppliers who will offer competitive prices. The introduction of new technology is another area that can lead to cost reduction and better efficiency. Reducing the human workforce can save a considerable amount of money. Enrolling for business courses offered by IIM that are amongst the best programs can help upcoming managers to develop robust strategies.

We have seen one of the types of business strategies that helps in gaining a better position in the market. Let us now see how a unique product can help companies beat competitors.

Product Differentiation Strategy

In this strategy, you have the leverage to keep the prices that you deem necessary. The reason behind this strategy is that your product offers unique or additional features that your competitors do not. For example, if you are selling handmade shoes instead of machine-manufactured, you give customers the benefit of the customized product. The customer is ready to pay more because of the nature of the product. Similarly, let’s say you are providing professional home cleaning services. If your competitor provides only five services in the package whereas you provide seven at the same price, it is called product differentiation. This kind of strategy allows you to sell the product on the terms and conditions you want because your product delivers superior value.

How Does Product Differentiation Benefit?

The main advantage of having a unique product or providing additional characteristics in an item that competitors don’t have is that it stands out and gets noticed. Being noticed by brand name is itself enough to increase sales and profits. There are many customers who will give importance to product quality and specialties rather than price. Having product differentiation will help to tap this customer segment. This product being unique, will not face any competition, and there will be nothing to compare this with.

Another big benefit is that companies who choose this from the 3 types of strategy implementation gain customer loyalty. Those who have purchased an item because of its unique properties will not shift to other commodities. They will continue to buy this merchandise till a similar one is available. Because of its unique qualities, companies are able to demand a price that offers good profitability. As there are no competitors, customers will pay whatever price is demanded.

When product differentiation improves brand equity, it enables a company to introduce more products in that brand name. These can be used as additional revenue sources to improve profitability. When a company has earned a name for making only highly unique products, it is possible to monetize that image to sell even regular products that are similar to that of competitors.

Also Read : Applications and Benefits of Business Analytics

Disadvantages Of Product Differentiation Method

A huge disadvantage of this strategy is that unless customers perceive that item to be offering some specific benefit for them, the strategy may not work. Nobody is ready to pay a premium for something that is unique but doesn’t add any value to them. Any other product offering similar benefits with different ingredients and at a lower cost can become a strong competitor. Product differentiation should also be backed by quality service, which can become costly and difficult.

When introducing a product at a premium price, a company is distancing itself from a vast majority of people who are price-conscious. This can make it very difficult to achieve high sales volumes. If profitability comes down due to rising costs, the company may be forced to increase prices. This may not be received by regular customers who may shift loyalty. Situations like the present pandemic force people to reduce expenses. This can result in a drastic drop in sales.

Among the different business strategies, product differentiation offers a chance for companies to gain a better position in the market by improving their product attributes. Before implementing this method, a company must confirm that its products are suitable for this strategy.

Actions To Perform Before Implementing Product Differentiation

1. Are The Claims Real?

When a company is planning to implement a product differentiation strategy, it needs to be sure that the product is really different from others. There must genuinely be product attributes that are beneficial to customers and are worth paying more. Today’s customers are highly informed, and any gimmick can backfire badly. It can severely affect a company’s reputation and affect sales very badly. An organization that claims superiority over others must be able to prove it all the time.

2. Does It Provide Value?

A company can make any number of improvisations on a product. But they must be useful to those who are buying them. Unless there is any value addition to customers, they will not be willing to pay an extra price. Before implementing the product differentiation method, companies must ask whether these changes matter to their customers. If it doesn’t, then there is no point in making any changes. It will not have any effect on the sales of the product or improve brand image.

3. Can Customers See The Difference?

It is good to tell everyone that a company’s products are good and they offer value. But it is not visible to them. There must be something that makes a firm look different from others. If it is a company that already has products in the market, it can introduce a new color scheme for the items that possess unique characteristics. These products can be marketed under a different name that represents their premium quality. This is easier for customers to see the difference.

How Should Customers Perceive This Company?

This is the first question any company that chooses product differentiation from different types of strategies in business should ask. They must know what their specialty is. Writing down the weaknesses and strengths is a good way to start deciding how they want to project themselves to customers. Every activity should be based on this identity that a company creates for itself.

Researching The Audience

Companies must necessarily be aware of what qualities their customers are looking for. Research into customer needs can tell correctly how a firm must highlight its strengths. They will know what to focus on that will excite customers to try their product even by paying a premium price. This will also help to make the differentiator characteristics more accurate.

Creating Differentiators

This is an important step. Though the company has decided how it wants to be perceived, it must create differentiators that will make customers know they are not the same as their competitors. There can be many qualities that can make a product stand above others. It could be the product itself, service, distribution network, or reputation.

Conveying The Message

Anything a company does must be conveyed in a manner that captures customer attention. That message must not just highlight product differences but also tell about the company and its goals. The story that a company tells must make its target audience aware of what sets this firm apart from others. Using the website or social media platforms is a good way to convey this message.

Growth Strategy

This strategy comes into the picture when the business is doing well yet the revenues are static. You want to grow your business – it could be either by adding new products, new product lines, improvising the existing product, or selling the same product beyond the current geographical reach. You may also consider a merger and acquisition strategy – you could either buy a new business or let another business acquire yours.

A growth strategy is very important for all firms because, at some point in time, their business is going to become stagnant while expenses go up. It will become impossible to sustain at such times. That is why they must employ different strategies in business that will help them grow. One must remember that a growth strategy is different from an annual sales plan. This one is for long-term growth that will be permanent and continuous.

Also Read : How to Develop a Growth Mindset in Your Team

Ways To Expand A Business

A growth strategy is a way to expand a company’s business beyond where it is operating, and there are four ways that can be used for this purpose.

Deepening Reach In Existing Markets

This is one of the types of strategies that don’t require firms to go to new markets or launch new products for growth. They can do it in markets where they are already present. This makes it easy for these companies. It can be achieved by reducing prices and getting more customers to buy their products. The other way to get this done is to intensify marketing activities and lure customers away from competitors.

Finding Alternative Channels

In this process, companies can look at additional ways of reaching their customers. If they are not already selling their products online, then that can be added as an additional channel. There could be some products that can be offered on rent instead of customers needing to buy them outright. This is one way to get additional revenue and get an advantage over competitors. Exploring such new ways will help in improving growth.

Expanding Markets

Companies can improve their sales by going to new markets or targeting new customer segments. It is necessary to see which one will be more successful. For some products, it may be easier to find new customer segments in existing markets as they will already be popular in that market. Entering new markets will also help because any new product can cause excitement in a place and attract customers to try it.

Launching New Products

Using this type of strategy in business can give a huge growth in sales and revenues. For companies that are already existing in a market, this is an excellent way to increase their business because customers are familiar with the brand. But care must be taken to ensure that organizations launch products that can provide a solution to customer needs. They must also choose their target audience correctly. Launching extensions of an existing item can be a safe bet.

Diversifying

This is a highly effective way to ensure growth for a company. Diversification means entering a new market with a new product. But this method can be very risky because there are various unknown aspects. But, if this process is completed in a well-planned manner, this can lead to huge growth in revenue. It is possible to create a lot of expectation and excitement in a market that has not experienced such an item. Companies must do a lot of research before implementing such a growth strategy.

These are certain methods of increasing business and gaining a better foothold in the market using resources already available. But there are also other methods that involve buying another company to add completely new product lines. This is one of the types of strategy for growth that is called integrative growth strategy. There are three ways in which this can be implemented.

Also Read : How Business Analytics Helps Improve Business Decisions

Horizontal Integration

In this method, companies can buy one of their competitors to increase reach. It can help capture customers for both brands and increase sales. Another advantage of this kind of integration is that a competitor gets eliminated, and gaining market dominance becomes easier. Many companies have succeeded by purchasing competitive brands and retaining them as it is.

Backward Integration

Backward integration works by buying suppliers of raw materials. Companies can get good control of raw material supplies and prices in this manner. In some cases, this will also help in producing new products that can help in increasing profitability. Many companies have used this method to ensure that there is no shortage of raw materials.

Forward Integration

This is exactly the opposite of backward integration. In this growth strategy, companies buy their downstream operations. Many companies have purchased retail chains that sell their products. This helps to push their items at these stores, virtually blocking competitors’ access to customers. It will also help in ensuring that distributors and retailers don’t have control over markets.

Also Read : Top Principles of Organization Strategic Design

Ways To Implement Growth Strategies

It is not enough to know various types of strategies that help in company expansion. One must also know how to implement these successfully.

1. Choose The Growth Method

Choosing your method of expansion is essential before starting this process. There are many ways to grow. Some companies will prefer adding new locations or branches. Other firms may choose to go further by expanding in new countries that may have fewer competitors. Adding new products or services is another possibility. A company must be clear about which way it will use to improve its revenue.

2. Justify The Choice

It is not enough to decide on a path. Companies must be able to justify that this is a viable method. Researching industry growth and prospects is an excellent way to reassure that the chosen path is correct. Conducting surveys among potential customers is a good way to know what their requirements are and what type of business strategy will be ideal.

3. Quantifying Goals

Once a company has decided what method it will be using and has done adequate research, goals must be quantified. Firms must decide how much they will grow by and also have a timeline for such goals. These objectives must match with what aspirations a company has with regard to expansion. A specific aim is much better than just talking about “increasing sales.”

4. Chalking Out The Plan Of Action

Once everything is on paper, it is time to have a clear plan of action. The way forward with responsibilities for different teams and people must be clearly mentioned. This will help everyone to know their roles in this task. It is also a good way to ensure that all employees know the target very clearly.

Also Read : Understanding the Process of Developing a Business Management Strategy

5. Determining Requirements

Nothing can happen without having the necessary resources. This can include funding, tools, and services. Once it has been decided how a company is going to achieve its goals and an action plan has been drawn, it is necessary to look at what additional resources are needed. Listing this down will help in ensuring that everything has been accounted for.

6. Execution

Once a firm has formulated a plan and acquired resources, it is time for execution. Care must be taken to periodically compare the progress of action with what has been planned. It is also necessary to see that everyone contributes as they are expected. Wherever there are deviations, they must be corrected immediately so that objectives are achieved as planned.

Now, if you are wondering which strategy is best, the answer is none. Each of these strategies can be used independently or holistically, depending on your business goals and circumstances.

If you want to learn about these strategies in detail, join a strategic management certificate online.

For growth-oriented business owners, conquering their local market is only the beginning; their ultimate goal is to expand their business globally. Going global has a lot of benefits. For example, it helps extend the sales life of products, spreads the risk of loss, expands and grows your business.

Follow these steps to build an effective international business strategy:

Step 1: Build a Solid Foundation

Before you start thinking of expanding overseas, your company must have a solid foundation in its home country. Many other factors need to be considered before going global, like whether you have enough resources. Is your star team ready to juggle both your ventures? Is your business financially and structurally strong enough? It is essential to answer these questions before going global because these attributes form a solid foundation that will help your business support global growth.

Step 2: Perform an Internal Business Analysis

Even though your business has a strong foundation, do you think it will succeed in a new market? To help you figure that out, you need to perform an internal business analysis. This will also help you identify specific resources, core competencies, and capabilities.

Step 3: Develop an International Strategy

It is essential to remember that each market has its own distinct characteristics, culture, economic market, and government environment. You need to create a localized strategy for each location, keeping these factors in mind. The strategy will help you improve the odds of success in varied markets.

Also Read : International Strategy Vs Global Strategy

Step 4: Break Down Cultural Barriers

Another essential factor to keep in check while building strategies for the international business of your business. If you really want to up your game, you are going to have to work with the locals who are familiar with the culture and language of the new place.

Step 5: Differentiate your Product Line

The main purpose of this step is to have your product stand out from both local and foreign competitors. Make sure your product doesn’t have any offensive meaning when translated to another language. Also, take into consideration initiating a patent and trademark review and do not forget about distribution and logistics networks. Figure out who can sell your product and how your product will get to them.

Step 6: Get the Legal Documentation in Order

Many countries are extremely litigious; they need everything in order before they permit you to start operating in their country. Make sure you have all the necessary legal documents in order to protect yourself against any risks and liabilities.

Step 7: Prepare your Final Budget

Create at least a 5-year budget that includes key performance indicators and quarterly review systems to share with your team. Keep yourself updated regarding any changes in the laws whatsoever and set up a real-time budget.

Get Ready, Go Global!

Be consistent but adapt to the environment. Before making any hasty decisions, scout the internet; check out links to online strategies for international business. This will help you stay ahead of time and reduce the risk of failure. Also, you can opt for online courses that advise on strategies for international business. A certification in international business can help you test the waters before you go out for a swim.

More Information :

Executive Program In Business Management

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Professional Certificate Program In General Management

Why is it Important to Study Human Resource Management

Objective & Concepts of International Financial Management in India

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