Every business has to choose an appropriate strategy in order to succeed. It needs to place itself in the right position in the marketplace so that it can compete with other companies. This is known as strategic positioning. Let's examine this concept in more detail.
Strategic positioning definition
Strategic positioning is all about where a company stands in the market. It's how a business distinguishes itself from its competitors and how it is perceived by customers in comparison to other companies in the industry. By understanding its position, a business can make strategic decisions that will help it succeed.
Strategic positioning refers to the position a company holds within a marketplace. It determines how a company sets itself apart from the competition and delivers a product to the customers.
Chanel is considered to be one of the most expensive and luxurious shops in the world, whereas H&M is a relatively cheap multiple store. This way, Chanel’s value is very high and H&M’s value is low.
No matter what an enterprise’s position is, it can still compete and provide a competitive advantage. However, in order to do it, not only do they have to be different, but also differentiated. Understanding and developing a strong strategic position is crucial for a business to succeed and grow in today's highly competitive market.
Types of positioning strategies
Strategic positioning strategies refer to tactics a company uses to differentiate itself from competitors and establish the desired position in the market. Some of the common strategic positioning strategies include:
- cost leadership strategy
- differentiation strategy
- niche or segment focus strategy
- innovation strategy
- branding strategy
We will now explain positioning strategies based on Porter's generic strategy mix
Strategic positioning for competitive advantage: Porter's generic strategies
According to Porter’s generic strategy matrix (see Figure 1 below), all the markets operate in the same way, and a competitive advantage can be achieved using one of the three strategies. It is essential to use the generic strategy matrix as it has a huge influence on choosing and analysing a strategy. There are three types of strategies depending on the scope and source of competitive advantage:
- cost leadership strategy (broad scope),
- differentiation strategy (broad scope),
- focus strategy
Porter's generic strategy matrix
Cost leadership strategy
Firms choosing the cost leadership strategy aim to become a low-cost producer in the industry. They try to reduce costs wherever possible and offer customers products at the cheapest price. They typically take advantage of economies of scale and catch up on quantity, not quality.
A company using the cost leadership strategy is Asda. It offers numerous products at a relatively low price.
Differentiation strategy
Here companies try to make their product differ from the competition. They aim to offer customers something which is unique and innovative. In order to gain a competitive advantage, they need to do the research to make sure they produce something which will draw customers’ attention. They focus on quality instead of quantity.
A business using the differentiation strategy is Sainsbury’s. It offers a variety of products at regular prices.
Focus strategy
As the name suggests, businesses using the focus strategy focus on a specific segment of the market and consequently, their scope is relatively narrow.
The focus strategy has two variants:
- Cost focus
- Differentiation focus
The cost focus is when a company aims to provide the cheapest products within the industry whereas the differentiation focus is when it provides well-specified products.
Firms using the focus strategy are Aldi and Waitrose. Aldi offers essential groceries at the cheapest price whereas Waitrose offers groceries that are more sophisticated.
Strategic positioning analysis
Let us see a bride analysis with the factors influencing the positioning strategy. Factors influencing strategic positioning:
- competitor analysis
- skills and expertise
- market analysis
- resource availability
- financial stability
- marketing and sales
Let's take a look at some of them in more detail!
Competitor analysis
Oftentimes there are already existing companies that would be impossible to beat by a startup. For example, Ryanair being a low-fare airline, has so many customers that probably no one would be brave enough to establish an airline of the same type competing with it.
Skills and expertise
Some companies have special operational skills, which might be of an advantage over competitors. These skills may either result in producing something which is revolutionary (differentiation strategy) or cheap to manufacture (cost leadership strategy).
Market analysis
Market analysis is a crucial part of the strategic positioning process, as it helps a company understand the market landscape and identify opportunities for growth. It usually involves steps like assessing market size and growth, analysing customer preferences and competitive environment, as well as identifying market trends.
Strategic positioning examples
Let's take a look at three strategic positioning examples based on real-world companies:
Apple - differentiation strategy. Apple's strong brand and reputation for innovation have helped it establish a loyal customer base and differentiate itself from competitors in the electronics market.
Walmart - cost leadership strategy. The company's primary goal is to offer its products at the lowest possible price, and it achieves this through a combination of economies of scale and efficient supply chain management.
Tesla - differentiation and innovation strategies. Tesla's focus on sustainability and innovation has helped it differentiate itself from competitors in the automotive market.
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