Competitive Strategies Define Direction

Take a look at last year's strategic planning document. What was the direction of your competitive strategies? Were you aiming for a niche market that although had low volume delivering high margins? Or were you trying to compete as a commodity to get high volumes even though the margins were low? Or did you take the time to research and develop ideas that created differentiation to your organization where you can have high volumes along with high margins? You achieve this by delivering premium products or services at premium prices.

All three of these strategies can make your company sound, but your actions must align with your competitive strategies and your competitive strategies must align with your approach to leading the organization.

Niche Market

To reach a niche market you have to segment your market and offer special features for a specific type of customer. In some cases customization is required along with a good bit of research to understand the needs and proper approaches for this market. Obviously, if you want to attract young white collar customers to use a particular product, then you must find ways to rise above the competition and reach that customer or prospect in the correct manner based on their buying habits.

If a blue collar customer is the niche you want to serve more, research the products that best fit their needs and still fit the proper margins. Learn their buying habits and develop strategies to directly reach them. Needless to say, the different market segments used in this example are going to have different buying habits and have different product needs. The organization needs to strategize which niche they want to be the expert in and work to deliver for that niche.

The Commodity Strategy

Some organizations accept the fact they are not well positioned to serve a niche market and prefer to hold the course they have been on for decades by being another commodity in the marketplace. Although I don’t agree with using this as a long term approach to be competitive, it can be a stopgap approach. Let's say you want to make some shifts over the new couple of years to better position yourself but you don’t want to just sit without any strategies until you get a better definition of who you want to become, so you want to at least maximize your current situation.

A commodity strategy accepts you are one of several options for prospective customers, and you want to attract high volumes with lower margins. This is a strategy that can be profitable, provided you have an economy of scale. For example, the large banks in this country have hundreds if not thousands of branches across the country to serve their large numbers of customers. They have an aggressive approach to grow by acquisition as well as with service. Their profitability is based on their size! Their size allows them to offer slim margins because of the volume they can create. How does a credit union or smaller community bank compare? Most have an advantage in offering slightly better rates and lower fees but the commodity shopper is mostly looking for convenience followed by best rates. Wal-Mart has become expert in their ability to use their economy of scale to drive out smaller competitors and those competing in commodity-focused arenas could face the same fate.

Differentiation

By differentiating your organization from the rest of the pack, you are able to have the best of both worlds with high volume and high margins. How is this possible? When current and prospective customers must be part of your organization you have the ability to operate from a greater position of strength. Differentiation is all about uniqueness and brand recognition. Apple has been able to create this with the iPod and now the iPhone. Apple is creating must-have products where price is of much less concern to the buyer than the uniqueness of product and the brand of Apple. Obviously, Apple had to work hard to establish the brand with effective advertising and build the uniqueness in the mind of the potential customer where price was an afterthought.