STRATEGIES IN BUSINESS

A business strategy is the means by which it sets out to achieve its desired ends (objectives). It can simply be described as a long-term business planning. Typically a business strategy will cover a period of about 2-6 years (sometimes even longer).

A business strategy is concerned with major resource issues e.g. raising the finance to build a new factory or plant. Strategies are also concerned with deciding on what products to allocate major resources to – for example when Coca-Cola launched Pooh Roo Juice in this country.

Strategies are concerned with the scope of a business’ activities i.e. what and where they produce. For example, BIC’s scope is focused on three main product areas – lighters, pens, and razors, and they have developed super factories in key geographical locations to produce these items.

Two main categories of strategies can be identified:

1. Generic (general) strategies

2. Competitive strategies

GENERIC (GENERAL) STRATEGIES

The main types of generic strategies that organisations can pursue are:

Growth 

The expansion of the company to purchase new assets, including new businesses, and to develop new products. The Inland Revenue has expanded from being just a tax collector, to other functions such as collecting student loan repayments and paying tax credits.

Internationalization/globalization 

 Moving operations into more and more countries. For example companies like Gillette, Coca-Cola, Kellogg’s, and Cadbury Schweppes are major multinationals with operations across the globe.

Retrenchment

Involves cutting back to focus on your best lines. The Americans refer to this as ‘sticking to the knitting’ – i.e. concentrating on what you do best.

COMPETITIVE STRATEGIES
In his landmark 1980 book competitive strategy Harvard professor Michael E. Porter laid out three different types of strategies in business: differentiation, overall cost leadership, and focus. Any of these business strategies can be effective in the long term, but each has its own priorities for resource allocation. Which fits your business growth model?

Differentiation

Companies undertaking this strategy must prove to the customer that they are different and better than the competition. A differentiation business strategy is less concerned with price. Your company can command higher prices for products or services because they stand out in some way; they are worth the extra money. Your long-term strategy is to cut costs in the areas that don’t contribute to your differentiation, so you can remain cost competitive. Easy Coach (A transport company), for example, charges more for its fare than other transporting companies. But it differentiates itself by focusing on high-quality services and sustainability, and by cultivating a brand image as the transport choice for the busy professional (while others doesn’t have that same exclusivity).

Cost Leadership 

This is an easy business strategy to explain, but it’s difficult to implement. The whole goal here is to be the cheapest provider of your product or service. Naivas supermarket is the perfect example of cost leadership. They focus on providing a wide range of goods you can buy almost anything there, from household goods to furniture’s rock bottom prices. For most small business professionals, this strategy is out of reach. It works for large companies because they are selling on a massive scale. But you don’t want to reduce your profit margins when you have fewer customers.

Focus

Unlike differentiation and cost leadership strategies, a niche business strategy focuses on one small portion of the market. You’re fulfilling a need that perhaps fewer people have, but there’s less competition from other businesses. Think about Kenya Electricity Generating Company Limited (Kengen) or Suera Flowers Limited Company. Your making effort are targeted, which can make them easier to hit. If you’re advertising Sir Henry’s quality and exclusive men’s suits and clothing in a fashion magazine, you’re definitely reaching people who own or are interested in suits.

Growth Strategy

A growth strategy entails introducing new products or adding new features to existing products. Sometimes, a small company may be forced to modify or increase its product line to keep up with competitors. Otherwise, customers may start using the new technology of a competitive company. For example, cell phone companies are constantly adding new features or discovering new technology. Cell phone companies that do not keep up with consumer demand will not stay in business very long. A small company may also adopt a growth strategy by finding a new market for its products. Sometimes, companies find new markets for their products by accident. For example, a small consumer soap manufacturer may discover through marketing research that industrial workers like its products. Hence, in addition to selling soap in retail stores, the company could package the soap in larger containers for factory and plant workers.

Price-Skimming Strategy

A price-skimming strategy involves charging high prices for a product, particularly during the introductory phase. A small company will use a price-skimming strategy to quickly recover its production and advertising costs. However, there must be something special about the product for consumers to pay the exorbitant price. An example would be the introduction of a new technology. A small company may be the first to introduce a new type of solar panel. Because the company is the only one selling the product, customers that really want the solar panels may pay the higher price. One disadvantage of a price-skimming is that it tends to attract competition relatively quickly, according to the Small Business Administration. Enterprising individuals may see the profits the company is reaping and produce their own products, provided they have the technological know-how.

Acquisition Strategy

A small company with extra capital may use an acquisition strategy to gain a competitive advantage. An acquisition strategy entails purchasing another company, or one or more product lines of that company. For example, a small grocery retailer on the east coast may purchase a comparable grocery chain in the Midwest to expand its operations.

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