Ultimately you have to settle for one of the three business strategy options, and it is important that you are clear on what one you are going for.  

Your business strategies choices are, at the end of the day, very simple.   The big question is, how do you want to position yourself in relation to  your competition.  Basically your options are:  

To be the cheapest
To be the best
To dominate a market niche

Many small businesses go for the first option, in the mistaken belief that it is the only way to survive.   The problem is, there will always be someone who can do what you do more cheaply than you can.  

A cost leadership strategy is only really suitable for big businesses that have substantial economies of scale.  They are able to spread their overheads thinly over large volumes, and charge low unit prices.   So, if you are running a small business, this strategy probably won’t work for you.  

If, as a small business, you build your business reputation on being the cheapest, you are operating from a position of weakness.  Even if you can survive with your low prices, you will not be able to withstand a price war with a bigger competitor.  

The second strategy, being the best, can be used to build a powerful competitive advantage.  It means, however, that you have to have a unique product.  Otherwise you will have to spend a lot of money on research and development to stay ahead of the competition.  

You need deep pockets to win with this strategy.  Unless, of course , your product is so specialised that no one else is producing it.  And big companies, for whatever reasons, don’t want to produce it either.  That would give you dominance over a niche of your own.  Generally speaking, a product leadership strategy is only for the big boys.  While being the best in the category and staying that way can be a powerful strategy for highly specialised small businesses, it is just not sustainable for most.  

Dominating a market niche in your industry is the most suitable business strategy for most small businesses.  By adding value in a way that attracts a particular kind of customer, you can steadily build your business success. You are able to charge a premium.  And you don’t have to be the “best”.  

The trick, of course, is to clearly identify your niche market, and convince your target market that you provide the best solution to their problem.   For nearly all businesses, finding a niche and dominating it provides a solid foundation for building a business on.  

It is very important that you are absolutely clear on what generic strategy you are relying on.   Your business direction, by definition, is supported by a number of strategic tactics, whether you are aware of using them or not.    If you aren’t clear about your overall strategic direction, you may end up using conflicting strategies. For example, focusing customers on your low prices at the same time as you introduce best of class products.  Doing this means your profitability suffers and you fail to attract the customers you want…. not good!   Deciding on the generic strategy that will create the business success you are looking for, clarifies your thinking.  And it helps you see clearly what tactics you need to use.



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