Competitive strategy is a plan that combines the influence of the external situation with the integrative concerns of an organization's personal status. The objective of competitive strategy is to win the hearts of customers by satisfying their needs and, ultimately, to gain a competitive advantage and outperform the competition. To achieve and maintain a competitive advantage, managers must take steps to create sustainable competitive advantage. This includes emphasizing the four generic building blocks of competitive advantage, such as distinctive competencies, quality improvement, best industry practices, and organizational learning.
Functional strategy is concerned with developing the right things to give a business unit a competitive advantage. It is adapted to support a competitive strategy. For example, a company that follows a low-cost competitive strategy needs a production strategy that focuses on reducing operating costs and a human resources strategy that retains as few employees as possible. Other functional strategies, such as marketing, advertising, and financial strategies should also be formulated to support competitive strategy at the enterprise level.
The four strategic types are cost leadership, differentiation, focus or niche strategy, and contrast strategy. Cost leadership works if the company can produce its products at the lowest cost in the industry. A differentiation strategy requires the company to offer products with unique characteristics that consumers believe have value and are willing to pay more for them. Implementing a differentiation strategy requires a sales team that has the skills to effectively communicate the unique properties of products and convince consumers that they are receiving more value for their money.
A focus or niche strategy targets a narrow niche market while leaving the mass market. Companies that follow this approach take the risk of basing their fortunes on a small group of buyers. Finally, contrast strategy involves taking actions contrary to industry competitors in order to gain a competitive advantage.