For local business, it’s all about the S trategy!

I am fascinated with business strategy. As part of my final course of completing my Masters of Business Administration (MBA), I am now looking at how businesses compete against one another and ultimately succeed. How can local business compete with the likes of Walmart, or Home Depot? This post seeks to answer this question.

Crafting a strategy is not difficult. It’s all about carefully choosing the words that define the customer’s needs, and seek to satisfy them in the hopes of making a profit.

We start by first understanding how businesses compete with one another. Below you will find what the five most dependable strategic approaches in setting a company part from another are. They serve as a guide to what business strategies can be employed in order to make profits. The five basic strategies are the following:

Strategy Definition
Low Cost provider strategy Lowering costs to compete against rivals (Walmart)
A broad differentiation strategy Differentiation to make the companies products different than its competitors. (Johnson & Johnson baby products)
A focused low cost strategy Narrow buyer segments – Serving niche members customized attributes at low prices (PC baby food with added iron)
Focused differentiation strategy Differentiate the products in some way in order to compete successfully
Best cost provider strategy Giving customers more value for the money by emphasizing both low cost and upscale difference, the goal being to keep costs and prices lower than those of other providers of comparable quality and features (a couple of examples are the Honda and Toyota car companies with customer satisfaction ratings that rival those of much more expensive cars).

Are you competing solely on cost? The low cost strategy would be suicide to choose, because your small business is likely going to compete with the likes of Walmart. Small businesses simply do not have the economies of scale to compete. The broad differentiation strategy, while appealing, a small business also cannot effectively compete because they lack the size and strength of large companies that are able to provide to get the breath of products needed.

The remaining three strategies – the focused low cost, focused differentiation and best cost are definite possibilities. The focused low cost strategy is a possibility for small business because they can focus on niche customers who want low prices, but want quality. For example, a niche offering could be offering a no frills lawn cutting service to those who need to have their lawn grass cut, but prefer to fertilize their lawn on their own. The focused differentiation strategy on the other hand also caters to a niche, but make their products or service unique so it attracts a particular customer. The best cost provider strategy provides great service, and at the same time offers value for money spent.

If you own a business or frequent a small business on a regular basis, which strategy do you think they use?


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