Unlike in the "Field of Dreams" strategy, "If you build it, they will come," most businesses find a hefty amount of competition even in relatively untapped markets. Business leaders need to consider the market details to develop strategies for pricing, marketing and fulfillment. With the end-goal of satisfying customers' needs with your product or service, use business-level strategies to find your competitive advantage.
Cost leadership means offering the best price for products. Today's globalized markets make price a significant factor in selling to your customers. Big box stores use generic models for pricing, keeping costs lower than most. Digital marketplaces don't require the major retail overhead that brick-and-mortar stores do. The cost leadership strategy considers the cost to make the goods, transport and deliver them to customers. The price point is further affected by whether supplies are readily available and the cost your business to switch suppliers or vendors if their prices became too high.
For example, a wooden toy manufacturer might use a specific type of wood to make the company's toys. If that wood becomes unavailable from regular suppliers because of unforeseen circumstances, the cost of switching affects the bottom line and potential pricing.
When a product isn't the least expensive on the market, businesses need to find a way to differentiate themselves. Identify the features and benefits of the product or service that make it worth more money. For example, a Mercedes is more expensive than a Honda. While many buy the Honda for the price and reliability, Mercedes has differentiated itself as a luxury automobile with higher standards of quality and added features.
The focused low-cost strategy is similar to cost leadership; the company is trying to beat competitor's prices. However, in this business-level strategy, the business is focusing its marketing efforts in a specific way. This is most commonly seen when a company targets government contracts. It needs to beat competitors pricing but isn't trying to beat the general consumer pricing.
Focused differentiation takes the differentiation strategy one step further. It finds the added value of the products and services and then targets a small market niche. For example, a travel company may not be able to compete with the online travel sites for hotels and airfare. However, it might be able to target families seeking kid-friendly cruises or business travelers who need accommodations for conferences. This type of focused differentiation helps a business define a niche where it is profitable and not competing solely on price.
This business-level strategy combines low cost with differentiation. This model is becoming increasingly popular in global markets because it allows flexibility in both price and added value. While it is a successful strategy for large corporations such as Southwest Airlines, executing this strategy requires finding the sweet spot of price and value. In Southwest's case, it offers low-cost airfare with easy travel access to flights and in-flight perks. For a small-business owner, the sweet spot must be competitive in price, though not necessarily the lowest, and it must have a value-added component for consumers to justify the extra cost.