Generic Strategies That a Company Can Employ

¶ … generic strategies that a company can employ to derive competitive advantage. These are a low cost provider strategy, broad differentiation strategy, niche strategy based on lower cost, niche strategy based on differentiation and best-cost provider.

The low cost provider strategy builds the company around the concept of having lower costs than any competitor. This approach allows the company to offer lower prices to the consumer than its competitors can offer. The company should focus on efficiency in all aspects of its operations, and seek to build economies of scale in order to compete successfully as a cost leader. The broad differentiation strategy focuses on offering a superior product or service that is different than those of any other customers. This strategy has the company focusing on innovation, high quality production, continuous improvements and adding value. A high level of investment in inputs and people is usually required to succeed as a differentiated provider.

The niche market strategies take these same approaches -- low cost or differentiation -- and apply them to smaller markets. The niche can be defined by geographic uniqueness, specialized requirements, or special product attributes. The best cost provider strategy is a hybrid of low cost and differentiated. These companies seek to deliver a great product and a low price. This approach begins with achieving a low cost status, and then adding product attributes to differentiate slightly from other low cost providers.

Part II. My industry is placement services for nurses. My firm has adopted a differentiated approach. In the service industry, the companies with the best service levels are the ones that attract the most customers. Most of the other companies are either differentiated or best-cost in their approach to the business. There are no companies in the industry trying to compete strictly as a cost leader, because with a low cost the company cannot truly deliver the type of service that its clients and nurses expect.

My company has taken the approach of being premium within the industry. We do this by forging strong relationships and attending carefully to our customers' needs. We feel that there is a market for service at the high end, because some of the best-cost providers will have service lapses at times. Thus, we have undertaken this positioning in order to give us competitive advantage. In our experience, this has been successful and there are now a number of clients who have come to us specifically because we offer the best level of service and have the best contacts in the industry.

We support our strategy in the following ways. The first is that we want to have the best recruiters, and we therefore make hiring an important part of what we do. There is a high level of experience in our office and that allows us to be better than the other companies. In addition, we work together to solve problems, and have a high level of in-house training so that we are always learning new techniques and skills that help us to do our jobs better.

Part III. Best Buy is operating as a best-cost provider within the consumer electronics industry. The company's approach is to combine competitive pricing with a higher standard of service that its competitors offer. Best Buy's size allows it to have strong buying power, and that in turn allows Best Buy to compete on price with the likes of Wal-Mart and Target. By offering a low price, Best Buy seeks out the mass market. By targeting a broad audience with low prices Best Buy is competing primarily against other mass merchandisers that also offer low prices.

However, Best Buy realizes that most of its competitors do not specialize in electronics, but are more like general retailers. Best Buy inherently is going to attract consumers who are seeking a higher-end electronics shopping experience because Best Buy will have the bigger selection. While selection alone allows the company to have some differentiation to attract customers, it realizes that it is better to have multiple forms of differentiation.

The approach that Best Buy has taken in focused on training and the development of value-added programs. These programs, like the Geek Squad, provide a level of service that the other low cost companies do not have. Consumers expect a higher level of service from stores that specialize in a particular type of item, and the result of that is that Best Buy delivers on consumer expectations.

Best Buy cannot be said to be a true differentiated provider, however. The goods that Best Buy sells are common, so that consumers can easily and actively shop around for the best price on anything Best Buy sells. This competitive reality means that even if Best Buy is going to offer innovative service that it must still maintain low prices. So while Best Buy spends money on training and hiring, for example, it does this primarily because it realizes that it can price slightly above other stores if consumers feel that they are receiving a better value. Thus, Best Buy seeks only to remain competitive on pricing, but it also wants to provide a level of service that is clearly above that of any other major electronics retailer.