Business Strategies: Differentiation, Growth, and Cooperation
Strategy: Encompasses a set of coherent decisions that aim to configure the company and its behavior to achieve the proposed objectives.
Differentiation as a Strategy
To achieve the goals that are set, it is necessary to devise a strategy that includes decisions and actions. There are two main differentiation strategies:
Cost Differentiation
This involves offering the same product as competitors but at a lower price. A company following this strategy will reduce costs in activities necessary to provide the product. Economies of scale are achieved through volume purchase discounts, reduced unit manufacturing costs, and improved financial conditions. Lower costs are also obtained when there is privileged access to raw materials or unique manufacturing processes.
If a company can lower costs, it can offer lower prices while maintaining the same profit margin. If the competition tries to match the price, the company can lower it further and continue to profit until the competition cannot cover its costs.
Product Differentiation
Firms try to make their products different, at least in the eyes of consumers. This can be achieved by building a strong company image, creating prestige, and ensuring their products are trusted brands of high quality, often through the use of high-quality raw materials.
Strategies for Growth
Growth strategies have three dimensions:
- Growth: Increasing the company’s size, focusing on the advantages associated with scale.
- Stability: Maintaining the current position when the environment offers opportunities, but the company is unwilling to take advantage of them or prefers a slow and cautious approach.
- Defense: Conducting an internal audit to focus on specific activities.
If growth is chosen, strategies include:
- Increasing market share by increasing sales of existing products in existing markets.
- Diversifying the product portfolio by launching new products in new markets.
- Diversifying activities to increase the number of activities undertaken by the company.
- Opening new markets for existing products and activities.
- Providing new products and activities in new markets.
For opening new markets, growth would be through the internalization of the company. Domestic companies can choose internal development or opt for external agreements with other companies.
Cooperation as a Strategy
Cooperation can achieve economies of scale without major investments in fixed assets, reducing uncertainties and providing access to new markets. According to economic goals, there are different types of cooperation:
- Technology: Sharing the uncertainty and costs of research and technological development.
- Supply agreements: Agreements with suppliers.
- Production: Outsourcing part of the production due to productive capacity constraints.
- Marketing: Cooperation between small producers to facilitate the creation of a brand image.
- Marketing (Exchange): An exchange of products between companies that commit to market outlets.
- Customer service: Providing customer service in markets that the company is not interested in directly serving.