Competitive Strategy: Definition and Types (With Examples)

By Indeed Editorial Team

Published 16 May 2022

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

A competitive strategy is a long-term marketing plan that companies develop to maintain their market share and gain an advantage over their competitors. This type of strategy is important for companies in an industry where consumers have many options. Learning about these strategies can help you devise more effective business and marketing plans to secure customers. In this article, we discuss what a competitive strategy is, describe why it's important for a company to adopt and explain different types of strategies a company can employ with examples.

What is competitive strategy?

A competitive strategy is a set of policies and procedures that a business uses to gain a competitive advantage in its market. A company first evaluates its strengths and weaknesses, studies customer needs and understands the competition it faces in its industry. It can then use this information to devise a strategy to improve its competitive position. Businesses use a variety of strategies to raise the value of their products and services for consumers, investors and employees. Companies also employ these strategies to develop sustainable revenue streams for long-term financial health.

What is the importance of competitive strategy?

The primary goal of a this type of strategy is to give a company a way to stay ahead of its competitors. A business may also identify new deliverables while developing these plans. Many companies use these strategies to devise ways to generate and increase their profit and expand their business for long-term growth. Companies may also find ways to improve their interaction with their customer base. Here are some benefits companies may get from adopting these strategies:

  • Meet customer needs: It's important for a business to understand its target audience so that it can meet its needs better than competitors who sell similar products. This can help a company develop more unique features in their products or services to attract customers.

  • Knowledge of the market: The practice of devising a business strategy involves analysing competitors' strengths, weaknesses and advantages. It's also crucial to study all potential threats and research the needs, problems and preferences of potential customers.

  • Knowledge products or services: Researching a competitor's offerings can reveal to a company what its products or services lack so that they can enhance them accordingly. For example, if a competitor has several dedicated customer service hotlines, a company can add a 24-hour online customer service feature to its website to gain a competitive advantage.

  • Informed decision-making: Businesses can make more informed decisions and constantly improve their products or services when they devise strategies. For example, an online delivery service company can ask consumers whether they want contactless delivery if they find that customers who work from home may not answer the door to collect a purchase if they're busy in a meeting.

Related: What Are Decision-Making Skills? (Definition and Examples)

6 types of competitive strategies

Different companies can use various strategies depending on the market they operate in. These strategies may focus on cost, differentiation or customers. They may even use these strategies to retain and train employees. Here are some of the different strategies that businesses may use, along with examples of each type:

1. Cost leadership strategy

This plan suits large businesses that can produce a large volume of products at a low cost. Companies that use this strategy can keep the cost price of their products low so that they can make a profit. They accomplish this by taking advantage of economies of scale using large-scale production, high-capacity utilisation and a variety of distribution channels. These companies are usually the lowest price sellers in a market.

Example: Hypermarket Chain Superfoods uses a cost leadership strategy to reduce the number of resources they utilise to provide goods and services to consumers. This concept involves maximising the usage of materials, space, labour and time. The overall result is a reduction in the cost of production. The company also extends this principle to their staff training programme. They ensure each employee can undertake different roles in the workplace so that they can hire fewer people to run their stores.

2. Differentiation leadership strategy

This strategy requires identifying a unique quality that helps a company differentiate its products from competing options. This may result in consumers perceiving a brand to be superior to its rivals in the market, which allows a company to charge more for their products to cover the costs of their high-quality products and value-added services. Some defining features of companies that use this strategy may be the superior quality of its products, consistent customer support or the use of specific distribution channels.

Example: Future Tech specialises in consumer electronics, software and online services. It aims to make its products more unique in the market by anticipating consumer needs and satisfying them by using the latest technology in its offerings. They start offering new efficiency features, such as lower energy usage. This allows them to charge a premium for their products as consumers perceive them as a superior brand.

Related: What Is a Supply Chain? (With FAQs and Examples)

3. Cost focus strategy

Like cost leadership strategy, this plan also aims to provide customers with the lowest price. The major difference between these two concepts is that a cost focus strategy targets a specific market segment with its unique needs and wants. This helps a company establish brand awareness among a more specific audience. Businesses that use this strategy often focus on geographic markets with special needs. Cost focus strategies usually include reducing costs, improving financial efficiency and offering customers low prices.

Example: The market leader in energy drinks sells 500ml cans for $25. Energy drink company, Power Up, creates a new product line of 500ml cans using cheaper materials and ingredients that sell for $20 to target customers looking for low-cost alternatives. This means that if customers want to buy a cheaper drink, they may choose Power Up.

4. Differentiation focus strategy

Companies that use this strategy also target specific market segments, but they focus on the unique value of their deliverables. Businesses that follow this plan neither aim to offer the lowest price in the market nor are they trying to charge a premium for their offerings. This strategy involves a company differentiating its goods or services to appeal to customers who refrain from purchasing competitors' products because they lack specific features. This helps a company increase customer loyalty to maintain its market share.

Example: Elite Watches sell wristwatches and compete with smartwatch manufacturers. It focuses on making its watches fashion accessories instead of just functional timepieces. The brand incorporates jewellery in some of its collections to appeal to people attending special events like weddings or banquets.

5. Customer relationship management

A customer relationship management (CRM) strategy helps businesses create positive relationships with their customers. This type of strategy is helpful when devising products and services for businesses as it provides consumers with the best possible services, which fosters customer loyalty. This can also help companies develop new markets for their products or services. A CRM strategy is important because even slight changes in customer attitudes can affect the decisions they make regarding a company's offerings.

Example: Fresh 24-7 is a food delivery company that delivers fresh meat, poultry, seafood and vegetables directly to the homes of consumers. As part of its CRM strategy, the company launches a 24-hour live customer service programme by phone and online chat. This means its customers can always get in touch with a customer service representative to enquire about their purchases. The company analyses the data from its new customer service programme to identify issues with products and services, such as damaged packaging or slow deliveries, to identify areas for improvement.

Read more: What Is Customer Service?

6. Commitment-to-customers strategy

Businesses that use a commitment-to-customers strategy focus on customer satisfaction. This type of strategy is important because the more satisfied a customer is, the more likely they may become loyal customers. These customers also often refer a company's products to their friends and families, creating free marketing. A common tactic used for this strategy is customer loyalty programmes. Companies can use these programmes to more directly interact with their target audience.

Example: Uncle Frank's is a restaurant chain that uses a commitment-to-customers strategy. They regularly research new food items and improve the quality of ingredients they use. The brand also adds new items to its menu based on consumer trends, such as vegetarian and vegan options for meat-based dishes. This strategy helps the company attract and retain regular customers. They also introduce a stamp card system allowing regular customers to redeem a free meal after 10 visits.

Explore more articles