Of the many business models and strategies out there (and one of my favorite’s), has to be Porters cost vs. differentiation strategy.
In this strategy a company decides how it’s going to gain a competitive advantage by pursuing one of two strategies. Either a strategy focused on becoming the lowest cost provider, or by differentiating, making itself different from the competition in some way that the customer values.
Once this decision is made, a whole host of “options” come up, and the real fun begins. (If you want to use fancy talk instead of options you can say objectives and tactical initiatives, but nobody likes a show-off).
Cost strategy implies lowering your costs to be a low cost provider, and works great for commodity type products with little difference between them. If you’re looking for a good place to start here, focus on supply chain management to see where you can save a few dollars.
Differentiation on the other hand implies you have something different than your competitors in some way that the customer values. A good place to start here is a marketing plan designed to really help uncover and clarify your competitive advantage. In simple terms, try to answer the following questions:
- Who are we?
- Who do we sell to?
- Why do they care?
- How will we tell them?
What I like about this strategic model is its simplicity in choosing (most people know intuitively when they first start thinking about their business), and the almost limitless possibilities once a path is chosen.