How-To-Win Types of Strategy

As you explored a possible where-to-play choice, you should then find a way to win on that playing field. 

Don't focus solely on technology and product alone, it wouldn't lead to victory.

In today's reality, any technology can be replicated. Competition will follow your technology, trying to at least match it and ideally beat it.

It's not sustainable. You should have something else in order to provide an edge over the competition. 

Winning means providing a better value proposition than your competitors do and providing it on a sustainable basis. According to Mike Porter's theory, there are just two generic ways:

  1. Cost leadership

  2. Differentiation


Low-cost Strategy

In cost leadership, profit is driven by having a lower cost structure than competitors do. Imagine that companies A, B, and C all produce widgets for which customers will gladly pay $100. The products are comparable, so if one company charges more for its product than the others do, most customers will elect not to buy it in favor of the less expensive versions.

Company B and company C have comparable cost structures and produce the widgets for $60, earning a $40 margin. Company A has a lower cost structure for producing essentially the same product and is able to do so for $45, producing a $55 margin. In this instance, company A is the low-cost leader and has a dramatic advantage over its competitors.

The low-cost player doesn't necessarily charge the lowest prices. Low-cost players have an option to reinvest the margin differential in a way that creates a competitive advantage.

Differentiation strategy

In a successful differentiation strategy, customers choose your company because of greater quality or more interesting designs. You could have a higher margin than your competitors and a substantial advantage over them.

In this type of strategy, brands or products offer a specific value proposition that appeals to a specific group of customers. When there is a match between what the brand distinctively offers and the consumer personally values, loyalty emerges. 

It's also worth to mention that it's very difficult to pursue both cost leadership and differentiation because each requires a very specific approach to the market. If your company pursues both; when new competitors find a new way to deliver value, you eventually will be forced to choose what strategy you'd like to pursue. 

📌 Takeaways

  • Cost leaders can create an advantage at many different points—sourcing, design, production, distribution, and so on. Obsessive focus on reducing the costs is a core driver of value here. Anything that requires a distinctive approach is likely to add cost and should be eliminated.

  • Differentiators can create a strong price premium on brand, on quality, on a particular kind of service, and so forth. In a differentiation strategy, cost is not the focus, customers are. The most important question is how to delight customers in a distinctive way to make them willing to pay you.

  • Remember that there is no one single how-to-win choice for all companies. If you can't create a how-to-win choice, find a new playing field to create that choice there.

What about you?

What type of how-to-win choice is easier to follow and dominate? Share your thoughts in the comments below 👇🏻.

Thanks for reading!

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