VARIANTS OF BUSINESS STRATEGY

  Business strategy has different variants. Some of which are discussed here.

 1. Low Price/Added Value: This strategy may seem attractive, but there are successful organizations that have followed it. It is the 'cheap and nasty' option. It involves reducing price accompanied by low perceived value added and focusing on a price-sensitive segment. 

It might be viable because there could exist a segment of the market which, while recognizing that the quality of the product or service might be low, cannot afford or chooses not to buy better-quality goods.  As chains of stores concentrated on upgrading their merchandise, a number of other stores opened up with lower quality merchandise at much lower prices. They were seeking not to compete in the same marketplace as the fashion chains, but rather to appeal to a market sector with low incomes.

2. Low Price Strategy: This strategy is adopted in seeking advantage over competitors. It reduces prices, while trying to maintain the quality of the product or service. The problem with this strategy is that the competitors can also pursue this strategy that can also reduce price. Therefore, the only way competitive advantage can be achieved is if lower prices can be sustained while others are unable to do. An organization can sustain reduced prices only if it has the lowest cost base among competitors and is prepared to sustain a price- based battle. This strategy is difficult to achieve. For a firm that does not have cost leadership, but chooses to compete on price, the danger is that the result is a reduction in margins in the industry.  This reduces the ability of the firm to reinvest to develop the product or service. A strategy of low price can achieve competitive advantage within a market segment in which (a) low price is important and (b) a business has cost advantage over competitors operating in that segment.

3. The Hybrid Strategy: This strategy provides added value in customer terms while keeping prices down. Japanese firms have been doing this for years. The success of the strategy depends on the ability to both understand and deliver value for the satisfaction of customer needs, while also building a cost base that permits low prices that are difficult to imitate. It can be argued that, if differentiation can be achieved, there should be no need to reduce price, since it should be possible to obtain prices at least equal to the competitors, if not higher. However, the hybrid strategy could be advantageous if much greater volumes than the competitors can be acquired, and margins still remain attractive because of a low cost base and as an entry strategy in a market with established competitors.

4. Value added or differentiation strategies: A broad differentiation strategy offers perceived added value over competitors at a similar or somewhat higher price. The objective is to achieve larger market share, and therefore greater volume, than competitors by offering 'better' products or services at the same price; or enhanced margins by pricing slightly higher. The strategy might be achieved through uniqueness (improvements in products) or marketing based approaches demonstrating better than the competition how the product or service meets customer needs. At this position, the strategy is more likely to be built on the power of the brand or on uniquely powerful\ promotional approaches. This strategy is successfully followed by many Japanese car firms, which have invested heavily in improving the reliability of their products.


5.  Focused Differentiation: Following this strategy a business can compete by offering higher value to the customer at a significantly higher price and competing in a particular market segment and indeed this may be a real advantage. In the market for saloon cars Ford, Rover, Peugeot, Renault, Volkswagen and Japanese competitors are all competing within the one market to convince customers that their product is differentiated from those of their competitors. A BMW is also a saloon car, but it is not competing directly with other manufacturers. It is offering a product with higher perceived value often at a substantially higher price. It is therefore trying to attract different sort of customers -a different market segment.

6. Failure Strategies: Some of the failure strategies are: (a) Increased Price/Standard Value Strategy
This strategy follows increasing price without increasing perceived value to the customer. Unless the organization is in a monopoly position, it is very unlikely that such a strategy can be sustained. It is of course, the very strategy that monopoly organizations are accused of following. Indian telecom department was doing just this. Unless legislation or higher economic barriers to entry protect the organization, competition is likely to erode market share. (b) Increased Price/Low Value Strategy: The reduction in value of a product or service, while increasing relative price is disastrous.
(c) Low Value/standard price strategy: To reduce value while maintaining price is also dangerous, though firms have followed it. In the 1970s Cadbury Schweppes held the price of its basic chocolate bar, while reducing value in terms of quality, packaging, advertising support and so on, in the belief that its market share would be sufficient to preserve its position. It was not competitors with low market share increased theirs substantially.