What Is Competitive Strategy?

Glossary

In today’s rapidly evolving business landscape, identifying a competitive strategy is more crucial than ever for survival and growth.

How can businesses thrive amidst fierce competition and constant innovation? The answer lies in implementing a robust competitive strategy—an absolute necessity for companies operating in crowded markets filled with diverse consumer options.

Key Takeaways:

A competitive strategy is a long-term plan designed to secure a competitive edge over rivals.
The four competitive strategies developed by Michael Porter are cost leadership, differentiation, cost focus, and differentiation focus.
Porter’s strategies can be categorized into two main types: leadership and focus.
Establishing barriers to imitation is essential for an effective competitive strategy.
Strategies should account for competitors’ capabilities and industry dynamics.

What Is Competitive Strategy?

In This Article

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What is a Competitive Strategy?
Michael Porter’s Four Generic Competitive Strategies
Understanding Porter’s Competitive Strategies
Sustaining a Competitive Advantage
Other Ways to Sustain Competitive Advantage
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What is a Competitive Strategy?

A competitive strategy is a long-term product development and marketing framework aimed at achieving a competitive advantage over direct rivals.

A thorough market analysis informs a competitive strategy, enabling businesses to attract customers, navigate competitive landscapes, and enhance their market position.

Increased market share can lead to higher profits. Therefore, businesses must focus on continuously growing their profit share to ensure longevity.

The most recognized competitive strategies are those defined by Michael Porter.

Michael Porter’s Four Generic Competitive Strategies

Michael Porter, a professor at Harvard Business School, is one of the most cited scholars in economics and business. His foundational work on competitive strategies was first published over four decades ago and continues to influence modern business practices.

Porter’s strategies, which remain relevant today, include:

Cost Leadership Strategy. This strategy focuses on producing goods at high volumes with low costs while maintaining quality. The aim is to capture market share by offering lower prices than competitors, often achieved through mass production.
Differentiation Strategy. This approach emphasizes creating unique products that stand out from competitors. Businesses can charge a premium for these offerings, provided that the distinguishing features deliver real value to customers.
Cost Focus Strategy. This strategy targets a specific market niche and aims to offer lower-cost products within that segment without compromising perceived quality.
Differentiation Focus Strategy. Similar to cost focus, this strategy serves a particular niche but prioritizes product uniqueness. Companies may charge higher prices due to the specialized nature of their offerings.

Understanding Porter’s Competitive Strategies

Porter’s four generic strategies can be divided into two main categories: leadership and focus, each associated with cost or differentiation:

Leadership (Broad Market). These strategies address the core competencies of a business, aiming to meet demands unmet by competitors.
Focus (Narrow Market). These strategies emphasize serving a specific market segment, tailoring products to meet the distinct needs of that group.

When integrated, Porter’s competitive strategies emphasize either broad market leadership or narrow market focus, implemented through either cost or differentiation strategies.

Broad Market

Narrow Market

Cost

Cost leadership strategy

Cost focus strategy

Differentiation

Differentiation strategy

Differentiation focus strategy

Porter’s competitive strategies are considered generic as they can be applied across various business types and industries.

Sustaining a Competitive Advantage

The overarching goal of competitive strategies is to establish a sustainable competitive advantage—defined as achieving above-average profitability over time.

However, competitive landscapes are dynamic. The durability of a competitive edge depends on multiple factors, which should be assessed during the strategic planning process.

To maintain competitive advantages, businesses must implement strategic measures proactively. These include focusing on efficiency, quality, innovation, and customer responsiveness.

Key factors influencing competitive advantage sustainability include:

Imitation. High-quality products or services often attract imitation. To protect against this, businesses need to establish barriers that make it difficult for competitors to replicate their success.
Competitor Capability. Understanding the capabilities of competitors helps gauge their ability to imitate successful strategies. If significant changes are required for imitation, competitive advantages can be maintained longer.
Industry Dynamism. Industries characterized by rapid innovation may see competitive advantages diminish quickly. Businesses must remain agile to adapt to these changes.

Other Ways to Sustain Competitive Advantage

In addition to the aforementioned factors, sustainable competitive advantages can be built through:

Developing distinctive competencies.
Implementing business strategies that foster continuous learning and improvement.
Identifying and applying best practices.
Maintaining an up-to-date understanding of market conditions and trends.

Glossary

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Samantha Goddiess

Samantha is a lifelong writer who has been writing professionally for the last six years. After graduating with honors from Greensboro College with a degree in English & Communications, she went on to find work as an in-house copywriter for several companies including Costume Supercenter, and Blueprint Education.

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