Competitive strategy can be defined as the long-term planning of a company to gain and maintain a competitive advantage over others in the segment in which it operates. It aims to develop a defensive position in an industry/sector and generate a superior ROI (return on investment). Competitive strategy plays an important role, especially when the industry is very competitive and consumers have similar products at their disposal.
Michael Porter’s 1980 book Competitive Strategy (New York: The Free Press) has served as the basis for much of the development of business strategy. In it, Porter presents different dimensions by which companies develop niches within their segment. The strategies adopted by companies to compete within an industry can be differentiated along several dimensions that capture the possible differences between strategic options, including:
- Specialization: The company has a limited product range, or segments the target customers and geographic markets served.
- Branding: The company builds its brand and positions it through advertising or strength of sales, or competes primarily on variables like price.
- Channel policy: The company develops its brand with the end-consumer or through a distribution channel.
- Channel selection: The company uses specialized outlets or broadline outlets distributing multiple product lines.
- Product quality: The company emphasizes the quality of its products in terms of raw materials, low tolerances and specific distinguishing features.
- Technological leadership: The company seeks technological leadership or adopts an imitative position in relation to competitors.
- Vertical integration: The company integrates forwards or backwards.
- Cost position: The company seeks to be the low-cost manufacturer and/or distributor.
- Service: The degree to which the company provides added services in its product line, such as technical assistance, its own service network, credit lines, etc.
- Pricing policy: The company defines its relative price position in the market.
- Leverage: The company has financial and/or operational leverage.
- Relationship with the parent company: The company is a unit of a diversified conglomerate, part of a vertical chain, etc.
- Relationship with local government or host in foreign countries: The company receives government assistance or will be subject to various rules and regulations.
According to Porter, each of these strategic dimensions can be analyzed for a company with different degrees of detail and new dimensions can be added to refine the analysis. The key, according to him, is that these dimensions provide a global picture of the company’s position.
It is important to note that the strategic dimensions are related to each other, insofar as decisions related to one of the dimensions generally impact others.