A successful business strategy dictates the allocation of resources and outlines how a company will achieve its strategic goals. Whether the organization is focused on developing new products or marketing an existing service to an under-served demographic, having a solid strategy will help an organization realize its long-term goals. Typically, a strategy will be informed by core business objectives and keep key performance indicators (KPIs) in mind. It’s also essential to understand an organization’s market position, as the following business strategy examples will show.
Types of business strategy
Over the last decades, researchers and business leaders have identified a handful of so-called “generic strategies” with broad application across the business landscape. These core business strategies are:
- Broad cost leadership strategy
- Broad differentiation strategy
- Focused differentiation strategy
- Focused cost leadership strategy
But there are dozens of variations on these core concepts, and an organization may choose to enact certain types of strategies at different points. Good business strategies are carefully considered, but that doesn’t mean they’re static. Successful leaders will routinely review a strategy’s key components and update their plans.
For instance, entrepreneurs looking to increase profits might pursue a cost-cutting strategy, while a business hoping to expand would consider a growth strategy. If customer churn or dissatisfaction is a particular issue, a customer retention strategy would be more appropriate.
For economically healthy companies attempting to move into new markets, a diversification strategy—involving new customers or product lines—or a partnership strategy—involving the acquisition of new companies—might be best.
Still, exploring the core generic strategies can provide insight into how some of the world’s most successful corporations have leveraged market research to create phenomenally profitable roadmaps. Some examples of business strategies that embody these foundational theories are explored below.
Broad cost leadership strategy example: Walmart
When Sam Walton, the founder of Walmart, started his retail career in the 1940s, he had a simple idea: To find less expensive suppliers than those who served his competition and pass those savings on to the customers in his variety stores. Where many business leaders might attempt to profit directly from such favorable margins, Walton decided to pursue an economy of scale, profiting by attracting more customers rather than charging those customers more. In the more than seven decades since, Walmart has become one of the most famous examples of cost leadership strategy, which undercuts competition by offering goods or services at the lowest possible price.
As the company grew, it was able to take advantage of its ubiquity to demand lower prices from suppliers and sell goods for even less over time. Many of these savings have then been passed on to customers shopping in the stores, resulting in progressively cheaper goods. The retailer’s advertisements underscore this fact, encouraging customers to “Save money. Live Better.”
By the early 2000s, Walmart’s cost leadership strategy had been so successful one-third of Americans were frequent Walmart customers, illustrating how winning the price game can lead to a massively successful bottom line. This has been crucial for the big-box retailer as it increasingly competes with e-commerce giants like Amazon.
Broad differentiation business strategy example: Starbucks
When Starbucks was founded as a small business in 1971, high-end coffee was a niche market in the United States. But Howard Schultz, the company’s founder, believed there was an opportunity to import Italian coffee culture and differentiate his business from competitors like Dunkin Donuts.
To gain a competitive advantage over stores offering cheap coffee in fast food-type settings, Schultz opened a series of cozy cafes that encouraged long visits. Though the items sold at Starbucks were more expensive than those of the competitors, they were highlighted in marketing campaigns as unique and superior quality goods. Starbucks also paid careful attention to its supply chain, ensuring is products were ethically sourced and offering specialty drinks that in some geographic locations could be difficult to find. The company’s early focus on talent management for service employees was a major differentiator, as well.
Over time Starbucks also focused heavily on personalization, encouraging customers to create favorite drinks. Later in the company’s tenure, the company introduced loyalty cards and other advantages for repeat customers to encourage customer retention.
Today, Starbucks stores are ubiquitous across the globe, and the company’s success has made it one of the prime examples of differentiation strategy that undercuts competition by providing a premium product that is significantly more desirable than existing goods.
Focused differentiation strategy example: REI
A focused differentiation strategy—unlike a broad differentiation strategy, which seeks to gain massive market share by providing a premium good—tailors its business plan to a select group of consumers. The outdoor outfitter REI has had significant success in focused differentiation through a series of business decisions and marketing strategies that underscore the values of its target demographic. In REI’s case, product differentiation relies on how the business communicates its core values and provides a unique customer experience.
REI frequently positions itself as an ethical and sustainable outdoor brand: As the company says, it prefers to put “purpose before profits.” Since its inception, the company has underscored initiatives like its co-op membership model and sustainability commitments as a way to distinguish itself from competitors catering to more general audiences. Recently, the brand engaged in a relatively risky marketing strategy that reflects its goal of capturing a specific group of loyal customers.
Starting in 2015, REI closed its stores on Black Friday, the most popular shopping day of the year, and encouraged employees to spend the day outdoors. The initiative was accompanied by a social media campaign to bolster the brand’s reach. REI might sell products at a higher cost than its competitors, and operate fewer than 200 stores, but its business model is based on the idea that a loyal group of customers will find its messages and products relevant enough to pay a premium for goods they could easily find somewhere else.
Focused cost leadership strategy example: Dollar General
Where Walmart’s cost leadership strategy relied on becoming ubiquitous and operating at massive scales, the discount chain Dollar General has captured price-conscious consumers in more specific markets. Rather than trying to enter an entirely new market, the company focused on providing low-cost goods to rural consumers. Its strategy has been to open small stores in areas where big-box stores might not be and offer a complementary pricing strategy that attracts budget-conscious consumers.
This strategy has allowed Dollar General to grow into a smart and efficient operation with a strong target market and relatively low overhead. Typically, the chain leases its stores and keeps them small and bare bones, saving money on real estate and extensive labor costs. Stores also typically stock a smaller number of products targeted to its specific customer base, cutting costs and allowing it precise control of its supply chain process. By spending less to open stores, allocating fewer resources to advertising, and targeting regional cost-conscious customers, the chain expanded successfully into a niche market.
The importance of agility in business strategy
As the previous effective business strategies illustrate, strategic planning is crucial for an organization working to achieve its business goals. A strong sense of where the company should be heading makes decision-making easier, and can guide operations across all business units, from the organization’s corporate-level strategy to its product development plans. At their most effective, business strategies can be utilized on a functional level, meaning every department from finance to human resources is guided by the business’ broader goals.
But not all successful businesses strategies will conform precisely to the four generic models outlined above. Often, a company will combine aspects of one or more strategies, or pivot as markets and technologies change. This has been particularly true for startups, which often serve a diverse set of stakeholders and may base their value proposition on new technologies. Still, as the above examples show, the optimization of a business’ operations relies on thinking critically about how its disparate parts can work together to achieve a singular goal.
Business strategy and IBM
Emerging technology and social forces are creating new customer experiences that result in changing expectations and demands and disrupt business models. IBM Consulting’s professional services for business help organizations navigate an increasingly dynamic, complex and competitive world by aligning transformation with business strategy to create competitive advantage and a clear focus on business impact.