Different Types of Business Strategies

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  • 0:03 Business Strategy
  • 0:29 Cost Strategy
  • 1:17 Differentiation Strategy
  • 1:51 Focus Strategy
  • 2:44 Lesson Summary
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Lesson Transcript
Instructor: Shawn Grimsley

Shawn has a masters of public administration, JD, and a BA in political science.

Businesses are in business to make money. In order to accomplish this objective, a business may employ different business strategies in order to win over customers and generate profit. In this lesson, you'll learn about some of the common strategies.

Business Strategy Defined

Liz loves fashion and wants to start a clothing store. Like all smart entrepreneurs, Liz is writing a business plan. One of the most important decisions she must make is what general business strategy she will employ. A business strategy is a long-term plan that is used to achieve a desired business goal. Three general strategies are cost strategy, differentiation strategy and focus strategy.

Cost Strategy

One strategy that Liz can employ is to compete on cost. A cost strategy is about keeping business costs down as low as possible so a business can beat the competition on price and keep some of the cost-savings as profit. In order to make this strategy work, Liz needs to make her business as efficient and cost-effective as possible. She'll need to find the best deals from wholesalers and keep labor and other costs down.

Of course, Liz has no plan to pass all of her savings onto her customers. Some will be kept for profit. If she's successful, she'll have a better profit margin than her competitors. Perhaps the best model (or example) Liz can turn to for this strategy is a discount retailer like Wal-Mart.

Differentiation Strategy

Liz could go in a different direction and try to distinguish her business from the competition. A differentiated strategy is about providing a unique or rare good or service that is not readily available from the competition. For example, a Kosher grocery store that delivers offers both a differentiated product and service. Liz could try to differentiate herself by providing unique services, such as offering personal shopper services that will shop and make selections for you. She can also offer clothing from unique fashion designers.

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