Business Strategy Example – IBM Blog

A successful business strategy directs resource allocation and explains how a company will achieve its strategic goals. Whether your organization is focused on developing new products or marketing existing services to underserved populations, having a solid strategy will help your organization realize its long-term goals. Typically, the strategy is based on key business objectives and keeps key performance indicators (KPIs) in mind. It is also important to understand your organization’s market position, as shown in the following business strategy example.

Types of Business Strategies

Over the past few decades, researchers and business leaders have identified so-called “generic strategies” that can be broadly applied across business environments. These core business strategies include:

• Broad Cost Leadership Strategy
• Broad differentiation strategy
• Intensive differentiation strategy
• Focused Cost Leadership Strategy

However, there are dozens of variations on these core concepts, and organizations may choose to implement specific types of strategies at various points. A good business strategy is carefully considered, but that doesn’t mean it’s set in stone. Successful leaders regularly review key components of their strategy and update their plans.

For example, an entrepreneur looking to increase profits may pursue a cost-cutting strategy, while a business looking to expand its business may consider a growth strategy. If customer churn or dissatisfaction is a specific problem, a customer retention strategy may be more appropriate.

For economically sound companies looking to expand into new markets, a diversification strategy that includes new customers or product lines, or a partnership strategy that includes acquiring new companies, may be best.

Nonetheless, exploring key generic strategies can provide insight into how some of the world’s most successful companies have leveraged market research to create phenomenally profitable roadmaps. Below we will look at some examples of business strategies that implement these basic theories.

Example of a broad cost leadership strategy: Walmart

When Walmart founder Sam Walton began his retail career in the 1940s, he had a simple idea. His plan was to find a supplier whose prices were lower than those of his competitors and pass those savings on to the general store’s customers. Where many business leaders attempt to profit directly through lucrative margins, Walton decided to pursue economies of scale, profiting by attracting more customers rather than charging them more. Over the next 70 years, Wal-Mart has become one of the most famous examples of a cost leadership strategy, undermining competition by offering goods or services at the lowest possible price.

As the company grew, it was able to leverage its ubiquity to demand lower prices from its suppliers and, over time, sell its goods at even lower prices. Many of these savings are passed on to customers who shop in-store, making products increasingly cheaper. Retailers’ advertising emphasizes this fact, telling customers to “Save money. Live a better life.”

By the early 2000s, Walmart’s cost leadership strategy had been very successful. One-third of Americans are regular Walmart customers. This shows just how successful winning the price game can be. This was critical for large retailers increasingly competing with e-commerce giants like Amazon.

Example of a Broad Differentiating Business Strategy: Starbucks

When Starbucks was founded as a small business in 1971, premium coffee was a niche market in the United States. But company founder Howard Schultz 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 outlets serving cheap coffee in a fast-food environment, Schultz opened a series of cozy cafes that encouraged long-term visits. Although the items sold by Starbucks are more expensive than those of its competitors, they are highlighted in marketing campaigns as unique and high-quality products. Starbucks also pays close attention to its supply chain to ensure its products are ethically sourced and offers specialty drinks that may be difficult to find in some areas. The company’s initial focus on talent management for its service employees was also a key differentiator.

Over time, Starbucks also focused on personalization, encouraging customers to create their own favorite drinks. Later in his tenure, the company introduced loyalty cards and other benefits for repeat customers to encourage customer retention.

Today, Starbucks stores exist everywhere in the world, and the company’s success has made it one of the prime examples of a differentiation strategy that undercuts competition by offering premium products that are much more desirable than existing products.

Focused Differentiation Strategy Example: REI

Unlike a broad differentiation strategy that seeks to capture massive market share by offering premium products, a focused differentiation strategy tailors the business plan to specific consumer groups. Outdoor clothing company REI has achieved significant success in focused differentiation through a series of business decisions and marketing strategies that emphasize the value of its target demographic. For REI, product differentiation depends on how the business communicates its core values ​​and provides a unique customer experience.

REI is often positioned as an ethical and sustainable outdoor brand. As the company says, REI puts “purpose over profit.” Since its founding, the company has emphasized initiatives such as its cooperative membership model and sustainability commitments as a way to differentiate itself from competitors targeting a more mainstream customer base. Recently, the brand has used a relatively risky marketing strategy that reflects its goal of winning over a specific group of loyal customers.

Since 2015, REI has closed stores on Black Friday, the most popular shopping day of the year, and encouraged employees to spend the day outdoors. The plan also included a social media campaign to strengthen brand awareness. REI may sell its products at a higher cost than its competitors and operate fewer than 200 stores, but REI’s business model provides messages and products that are relevant enough for a group of loyal customers to pay a premium for available merchandise. It’s based on the idea that you will find it. You can easily find somewhere else.

Example of a focused cost leadership strategy: Dollar General

Walmart’s cost leadership strategy relied on ubiquity and large-scale operations, while discount chain Dollar General captured price-sensitive consumers in more specific markets. The company focused on providing affordable products to rural consumers rather than entering entirely new markets. The strategy was to open smaller stores in areas without large stores and offer complementary pricing strategies to attract budget-conscious consumers.

This strategy allowed Dollar General to grow into a smart, efficient operation with a strong target market and relatively low overhead. Typically, chains save on real estate costs and huge labor costs by leasing stores and keeping them small. Additionally, stores can typically stock fewer products targeting specific customer bases, reducing costs and providing precise control over supply chain processes. By reducing the cost of opening stores, allocating fewer resources to advertising, and targeting local cost-conscious customers, the chain has successfully expanded into niche markets.

The importance of agility in business strategy

As discussed in the previous Effective Business Strategy, strategic planning is critical to any organization striving to achieve its business goals. A strong sense of where the company is headed can make decisions easier and guide operations across all business units, from the organization’s corporate-level strategy to product development plans. The most effective business strategies can be leveraged at the functional level. This means that every department, from finance to human resources, is guided by the broader goals of the business.

However, not all successful business strategies follow exactly the four general models described above. Often, companies combine aspects of more than one strategy or shift direction in response to market and technological changes. This is especially true for startups that serve a variety of stakeholders and offer value propositions based on new technologies. However, as you can see from the examples above, optimizing business operations depends on critical thinking about how different parts can work together to achieve a single goal.

Business Strategy and IBM

New technologies and social forces are creating new customer experiences that are changing expectations and needs and disrupting business models. IBM Consulting’s business professional services help organizations navigate an increasingly dynamic, complex and competitive world by aligning innovation with business strategy to gain competitive advantage and a clear focus on business impact.

Learn more about IBM Consulting business strategies Read IBV’s report on the seven strategies shaping today’s world.