The importance of competitive strategy in a company

That way, you can improve your competitive edge over your competitors

Competitive strategies sit within the general set of business strategies, aiming to improve a business's competitive position against others in the sector. This can be achieved in a number of ways, but a competitive strategy has the core aim of achieving a competitive advantage, i.e. defining a feature or a quality that puts the business ahead of the competition in a broad, sustained way.

Therefore, we can define competitive strategy as a set of internal features that a company has to develop to obtain and strengthen its position above other competing companies.

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The creation of value

An element that can have an impact on boosting the competitiveness of a business is the creation of value, i.e. generating an added value that can be a crucial element in successfully assuming a competitive strategy.

The creation of value is one of the most important drivers to successfully pursuing this kind of strategy, since in highly competitive markets, margins are tight and low pricing strategies have little effect. In these cases, creating value is a very suitable option.

Often, creating value implies adding an innovative feature to a traditional product that has already been exploited competitively. The new feature enables it to stand out and obtain a unique competitive advantage, provided that it is not something that can be easily imitated by the competition.

According to the researcher Michael E. Porter, the value chain is a way of analyzing business activity whereby a company splits its overall activity into different parts, with the aim of identifying sources of competitive edge in value-creating activities. This analysis produces a set of functions that add value to a company's products and services, and the highest possible yield is obtained for each of these functions by reducing any superfluous elements. Therefore, if the company does this process, it will manage to develop and incorporate the activities of its value chain in a much more cost-effective way, allowing it to stand out from the competition.
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Types of competitive strategies

Now that we understand the theory behind competitive strategies, we are going to define the different business strategies that a company can implement to obtain a competitive advantage. One of the most significant theoretical contributions in this field is Porter's classification, which distinguishes three types of competitive strategies:

  • Differentiation strategy. This strategy aims to make the product significantly different to competitors' products and to create the perception that it is unique. The customer can pay more for the product since that company acts as a monopoly, being less price sensitive and more faithful.
  • Cost leader strategy. This strategy consists in producing at the lowest possible cost so that it is possible to supply the product at a lower price than the competition, through a productive and operational advantage. Sometimes, even in a very demanding market, the company can maintain the price and therefore benefit from a high-profit margin.
  • Focus strategy. Also referred to as high segmentation, this strategy consists in focusing on a specific segment of the market, implementing differentiation and cost leadership. In this way, the most suitable competitive strategy is applied to each market segment. Companies that implement cost leadership can obtain significant profit margins due to producing products at lower costs. Alternatively, if a company opts for the differentiation strategy and creates a considerable added value, it can justify setting higher prices than the competition. This method is known as segment differentiation.

Generally speaking, any strategy based on the existence of competitive advantage will strive to create a factor that cannot be adopted or imitated by the competition. This may mean that, if the company segmentation the product is good, it can create added value that is sufficiently attractive to rival the competition, especially if it is a company that, due to its size or capacity, cannot be a market leader.

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