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- 7 Types of Business Strategies for Business Owners
Business strategy is all about how your company positions itself and engages in activities that can help you gain a competitive advantage. Small business owners should explore how to allocate resources with each strategy and anticipate what’s to come. Your mission, vision, and values also come into play and can help you with planning. Here’s information about seven business strategies that may help grow or stabilize your business.
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What is a business strategy?
Business strategy is the collective term for all the steps a business takes to reach its goals and achieve its mission and vision. It involves understanding what the business does, what it needs to have, and what it needs to do in order to reach those goals.
That information helps business owners make decisions about resource allocation and helps set priorities. When everyone within the organization understands the strategy, it creates a framework to keep the team working in the same direction.
Questions to consider before choosing a strategy
Strategy decisions will guide your business in the direction you’re working towards. With so many ways to go, it’s important to keep your vision top of mind. Here are some guiding questions to ask yourself and your team along the way:
- Who are we?
- How do we stand out?
- Where do we want to go in the future?
Once you have an overall picture of your business objectives, narrow down your questions to focus on the more immediate goals that will help you get there. Make sure to stay realistic: keep your plan of action within the resources that you have available, your user base, and your specific market needs.
Here are business strategies to consider.
By adopting a structuralist strategy, you’ll be building your business operations around the current market conditions and using the industry structure to your advantage. That might mean that you order products or supplies using your vendors’ established processes, or you take barriers to entry into consideration.
If you’re choosing a growth strategy, it means you’re focused on introducing new products or features or expanding into new markets. Looking for a competitive edge by offering a unique experience your potential customers won’t find anywhere else? Found a new customer base through market research or professional networking? That’s when to consider a growth strategy for your business.
3. Cost Leadership
Becoming a cost leader is a way to set your business apart by offering a competitive price for your product or service. If you have a unique strategy to lower costs without sacrificing quality, use that to set yourself apart in your industry. There are many benefits to being a cost leader including:
- Cost leaders can charge the lowest amount for a product while remaining profitable
- Cost leaders can withstand recessions better than competitors because they are experienced in appealing to consumers with budgets in mind
- Cost leaders can be more flexible. Since their costs are low, they can discount prices more often to attract a larger customer base.
Note that a cost leadership strategy comes with a certain amount of risk. If a competitor can reduce costs more frequently, it could take away your customers.
With a truly unique product or service that you can offer to potential customers, you can stand out in the market. Differentiation allows a business to take a creative approach and charge premium prices for products or services. For example, Starbucks® goes beyond selling coffee by providing a unique coffee experience in their stores. Strategies to drive brand differentiation include:
- Emotional response
- Creative presentation
- Unique experience
Product differentiation is important because it can lead to a competitive advantage in the market. If differentiation was not an option for smaller businesses, larger companies would always dominate as they have the ability to set the most attractive price.
Price-skimming strategies involve charging a high price for your product or service at the start to cover initial costs like production, manufacturing, and marketing. Usually, this approach makes sense for a business introducing something that hasn’t been done before and that’s worth a higher price. The advantages of a pricing policy are the ability to make your product appealing to customers, while covering costs. The disadvantages of pricing strategies that do not sufficiently appeal to customers will not provide the income you need to operate successfully.
Acquisition strategies are a way to promote growth by purchasing another business. This is different from an organic growth strategy, where the focus is growing in-house products or services. Some reasons to pursue acquisition of another business include:
- Obtaining quality staff or additional skills, knowledge of your industry or sector and other business intelligence.
- Accessing funds or valuable assets for new development
- Attracting a wider customer base, increasing your market share, and reducing competition
- Diversification of products or services
- Lowering costs and overheads through shared budgets
Business acquisition can be extremely complex. Be sure to have legal and financial professionals on your team.
The idea behind focused approaches is that you can choose what segment of the market you want to target through any of the strategies already covered. If you see an opportunity to lead in a specific area, narrow in and focus your efforts on pursuing it. Sometimes, this can pay off more than attempting to capture the entire market through your business strategy.
When deciding on a business strategy, your first stop should be reviewing your business plan. You’ll learn about your strengths, weaknesses, competitive challenges, and resource allocation. This information can help you shape the most effective business strategy for your unique business. If you need to create a business plan or refresh your current plan, review our article from the SmartBiz Small Business Blog: How to Start a Business Plan: The Ultimate Guide.