All about Business Strategies: Types, Pros & Cons, Examples

It almost doesn’t matter which sector you work in because competition is fierce across all sectors. Companies are constantly trying to gain an advantage by cutting down costs, introducing unique solutions, or investing in expansion. All of these moves can be powerful, but they need to be within a clear, well-defined framework that can base the strategy on company resources. 

That framework is called a business strategy. Let's see how it works.

Types of Business Strategies

There are many different business strategies available, and each can be a powerful tool in a certain sector or niche. But, overall, these three are the most common strategies out there:

Cost Leadership

To increase performance and lower production costs to levels below the market standard (or those of the local competitors), companies might use cost leadership strategies. In other words, cost leadership allows you to lower your price compared to other businesses in a niche sector.

People are becoming more aware of the possibilities. They constantly hunt for ways to increase their income so they may spend more. One strategy to attract customers is to provide an irresistible pricing plan that nobody else is offering.

Differentiation

One strategy for smaller companies to compete successfully against bigger players is differentiation. The main goal of a differentiation strategy in business is to build an edge over rivals and improve credibility in that market. To do this, the company has to understand its strengths, limitations, and consumer demands.

In order to consistently have an advantage over competitors, you need to always set a budget for improving your goods and services. A business needs a top-notch team of product developers and marketing experts to create differentiated solutions in a particular niche. Branding is also a key part of this strategy as it can highlight your difference from the rest.

Growth

Companies use a growth strategy to extend the reach of their enterprise. Using a growth plan may help a company in many cases like expanding the scope of its services, growing its market share, adding more departments or divisions, or developing new office or retail space. Whatever your goals may be, a growth strategy can be a powerful tool in your arsenal.

Pros and Cons of Business Strategies

So, now you have a basic understanding of these three strategies. Of course, no strategy is perfect and each comes with unique benefits and drawbacks. We start with the cost leadership strategy advantages and disadvantages.

Cost Leadership - Pros

• Inevitable domination: It is going to be hard for rivals to survive, helping you achieve market dominance over time. Of course, that is unless they are ready to cut costs (and go into the negative).
• Survival in tough times: During trade wars or economic downturns, businesses with the cheapest prices and fees thrive.

Cost Leadership - Cons

• Hitting the sales number can be difficult: In most cases, you cannot achieve maximum results without hitting a significant number of sales.
• Risk of bankruptcy: You need to hit your sales numbers and hit them fast because you don't want to spend all of your budget and risk filing for bankruptcy.
• Can compromise other parts of your operations: This approach is all about saving money and taking shortcuts, which might mean lowering spending in crucial areas like customer service and R&D (thereby limiting product innovation).

Differentiation — Pros

• Creating a passionate fanbase: By creating a distinct image of your brand, you can turn customers into passionate fans who always share ideas and views about your business.
• Easy sales and marketing: Finding a unique selling proposition (USP) makes marketing your goods or services much simpler.
• Room for increasing the price: Differentiated brands like Nike are always in high demand which gives them the power to charge more than other similar players in the market.

Differentiation — Cons

• R&D expenses: Providing a distinctive quality could result in hefty R&D expenses. The final manufacturing costs may rise as a result of new product components.
• Might seem out of touch: When a product is too complicated or unknown to the customer, they may steer clear of your brand.
• Might be too niche: You can't satisfy everybody, and by sticking to a tiny sector, you won't be successful if the niche isn't big enough.

Growth — Pros

• Improving with the market: As items and marketplaces expand, so does the company's market strength.
• Perfect for competitive spaces: When the market is very intense and dynamic, this method works well.
• Creating momentum: Thanks to the growing popularity of the product and marketplace, it gives leaders psychological fulfillment.

Growth — Cons

• Risking the current share: The company can lose its current market share as it is concentrating on emerging sectors and goods.
• Not enough resources or skills to meet the demand: The expanding demand may exceed the available resources and skills, disrupting the growth strategy implementation steps.
• Requires deep understanding of the market: A growth plan may be dangerous without properly understanding the market.

Examples of Successful Business Strategies

Now that we’ve discussed the types, benefits, and drawbacks of different business strategies, it’s time to see some real-life examples. 

Big W

Big W has always been one of the most popular players in the retail industry of Australia. Of course, such a status is not by coincidence because the company constantly works on improving its business strategies. 

In recent years, Big W adopted a mix of cost leadership and differentiation strategies to prioritize efficiency while keeping costs down. It invested in cutting-edge, self-checkout devices and integrated solutions such as Visa payWave into many outlets that made shopping fast and convenient for customers, boosting their satisfaction.

HubSpot

One example of the most successful business strategies in the tech industry is HubSpot. While most companies focused on driving revenue by applying a marketing strategy to their existing products or services, HubSpot took an innovative approach by focusing on marketing itself.

The company created a software marketing solution that leveraged blog posts, videos, photos, and all existing material into a differentiated package. HubSpot drastically changed the marketing game back then and even introduced the concept of inbound marketing.

Spotify

Before Spotify, most people only had options to platforms that either charged too much for streaming music or gave listeners little freedom in choosing the exact songs they wanted. Spotify capitalized on these two issues and used a combination of differentiation and cost leadership strategies.

First, they invested in developing a technology that allowed listeners to seamlessly pick whatever song they craved and listen to it. Then, they introduced a freemium model where people could enjoy many cool features without paying any money while being able to access extra services for a small fee.

Conclusion

So, there you have it. We listed different types of business strategies with their benefits and drawbacks. There's no single strategy that can work perfectly for all businesses as it depends on your resources, goals, and products.

Also, choosing and implementing the right strategy requires a deep understanding of the market. So, in the case of the tech sector, you need a team of experts by your side to help you navigate the whole process. 

Luckily, you don't have to look far for such a team because that's exactly what we do at LANARS. You just need to contact us.