In today's economy, The Low Cost Strategy will Win

It is time to invest in technology and do a marketing project that will both:

• drive costs out of your business, and
  
• serve your prospects and customers better.
  

Why? Well - there's an "old" book by Michael Porter that is simply titled Competitive Strategy. In it, he talks about the three generic business strategies. Once you've read the three, you find you sit back and say to yourself, "Well, that was kind of obvious." But it is kind of like Newton and gravity. Sure, everyone knows that an apple will fall. But, making the observation and then learning from that is what gives you the advantage moving forward. So, the three strategies are:

1. Low Cost: The low cost leader gains competitive advantage by being able to produce at the lowest cost. You can sell things for the same price and have more profit, or more cash to do battle with, or win a price war and still make a profit.
2. Differentiation: Making things "special" will satisfy the needs of a segment of customers and create a sustainable competitive advantage that will make customers less price sensitive. It will also allow a producer to charge a premium. Some of that premium will need to be used to pay for the additional costs in making the product or service "special".
3. Focus or Niche strategy: The producer focuses on a narrowly defined target market. Inside the Niche strategy, a company can either focus on a sub-strategy of differentiation or low cost. Typically, a Niche strategy is adopted by a small firm.

(As a side-note, it is important that a producer chooses ONE of these three strategies only. If a firm attempts to pursue two or more of these strategies, they end up stuck in the middle and are DOOMED to failure.)

So ... let's look at this in practice. As the recession takes grip on shoppers, they are heading to the low-cost alternatives. Want to buy electronics? Where will you go?

• Will you go to a specialty TV Home Theatre store? Not likely. There are few, if any, stand-alone home theatre stores anymore. You will find some Service Providers (not even Retailers really) in the Yellow Pages who can help you out if you are spending $50k on a home theatre. Where they do exist, these Service Providers are purusing the Niche strategy
• Will you go to a big-box electronics store? Maybe. These Retailers are struggling, and while they want to be Differntiating their services, Electronics are getting much easier and much cheaper. Plus, the price concious consumer is really shopping around. And where they are finding themselves is in the Electronics department of ...
• THE LOW COST SUPPLIER. That's right, the place you are likely to end up now to buy your Electronics is Wal-Mart. Reuters reported today that Wal-Mart is about to sell an iPhone for $99. $99!. In that article they make special note of:

"Wal-Mart has been gaining market share and clout in the recession as cash-strapped shoppers seek out its low prices."

What does all this mean for you? First of all, you will need to really understand your brand, and the business strategy you are pursuing. Also, you will need to understand the maturity of your industry and your positioning in the group. Subsequently, you will need to look at how you manage your brand to gain competitive advantage in an economy that appears to be slumping for the next year or more. Finally, you will need to launch Marketing Projects that will help you achieve your Brand and Strategy goals.

Be sure to check back tomorrow for "part 2" of this post, and more thoughts about Low Cost Business Strategies, and what you can do to win!