In the last post, we said that you have two basic strategy choices:
- Compete on cost – be the lowest cost provider in your market
- Complete on differentiation – offer something your competitors do not.
If you are competing on cost, it is a race to the bottom (which can take time) since your competition is always finding ways to do things cheaper, and you need to keep up to stay in business.
Again to quote Porter, “staying ahead of rivals gets harder every day. Competitors can quickly imitate management techniques, new technologies, input improvements, and superior ways of meeting customer’s needs”.
You can pursue a low-cost strategy, but it will get harder every day.
Maybe you are already experiencing this. Each year your profit margin shrinks. It is becoming increasingly difficult to win business….it always seems to be about price.
What can you do about it?
Using Porter’s framework again, you could move from a low-cost strategy to a product/service uniqueness or differentiation strategy.
Is there some new combination of activities that would allow you to add more value to your customers in a way that your competition does not?
If you discovered that new set of activities, you could move from a cost strategy to a differentiation strategy, allowing you to charge more.
Understanding what your customers really value is the key? Do you know the answer to this question? How do you know?
Are you offering features/services that your customers do not value but are costing you to deliver them?
What features/services do your competitors provide that you do not? How could you be different and add more value?
Lots of questions. Are you 100% sure you know the answers?
Knowing the answers can provide the key to your strategic move.
There is another strategic move you could make. Moving from a broad market to a narrow one.
We will discuss that in our next post.
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