types-of-business-strategy

Breaking Down Three Types Of Business Strategy

Business strategy is a choice of direction to grow a company’s value in the marketplace. While the strategy might seem all about techniques, objectivity, and bound to the real world.

It is also a matter of philosophy, in short, how the company interprets the real world and thinks it will develop in the future.

There are many ways to break down business strategy.

Let’s perhaps, start with a simple break down of business strategy, in three core parts:

Market entry: context-based

market-entry-strategies
An entry strategy is a way an organization can access a market based on its structure. The entry strategy will highly depend on the definition of potential customers in that market and whether those are ready to get value from your potential offering. It alls starts by developing your smallest viable market.

A market entry will vary from the company’s size or existing products. If, for instance, a company like Microsoft or Google enter new markets, they will not do it as niche players.

Instead, they might build, acquire, or grow products that have the potential to gain a large customer/user base, quickly.

However, if we instead take into account a business strategy for startups, therefore, companies entering a market as a new player, there might be three primary ways to do it:

entry-strategies-startups
When entering the market, as a startup you can use different approaches. Some of them can be based on the product, distribution or value. A product approach takes existing alternatives and it offers only the most valuable part of that product. A distribution approach cuts out intermediaries from the market. A value approach offers only the most valuable part of the experience.

Breaking apart existing offerings

One way is to look at the product and unbundle it compared to what existing players are doing. This process looks at the current product offering in the marketplace and makes the product better and more convenient.

Take the case of Apple turning the music industry upside down, by offering single songs on its iTunes (a model then made obsolete by Spotify as it offered all songs users wanted with a single subscription.

Breaking apart the distribution network

A second way is through disintermediation. Therefore, the entry player will identify the part of the distribution network that can be substituted.

Take the case of OTAs (Booking, TripAdvisor or else) removing or at least making the physical agency irrelevant by offering a wide variety of comparisons online, on their platforms.

Breaking apart the value chain

Another entry strategy is that of identifying within the customer journey, the most valuable part, to offer that alone.

Perhaps, Birchbox offering a subscription service to provide customers samples of pre-selected cosmetic products, remove the hardest part from the value chain (select those products in the first place) while providing what might be perceived as the most valuable part (high quality pre-selected cosmetics delivered straight to the customer, thus removing the most challenging part).

microniche
A microniche is a subset of potential customers within a niche. In the era of dominating digital super-platforms, identifying a microniche can kick off the strategy of digital businesses to prevent competition against large platforms. As the microniche becomes a niche, then a market, scale becomes an option.

In that sense, companies entering several markets will opt initially for a niche, or a small segment of the industry, to validate the idea, gain traction, and evolve their business models from there.

For instance, when PayPal entered the market, it didn’t do it by trying to bring in as many customers from all over the places. It simply found out that many of its power users were on eBay, and it surfed, what it was at the time a giant.

As we’ll see by the end of the article, eventually eBay acquired PayPal, and by 2015, it spun it off. Today PayPal is worth much more than eBay.

Growth and market share acquisition

Once companies have entered markets successfully, it’s the turn of figuring out growth, to gain a competitive advantage.

competitive-advantage
According to Michael Porter, a competitive advantage, in a given industry could be pursued in two key ways: low cost (cost leadership), or differentiation. A third generic strategy is focus. According to Porter a failure to do so would end up stuck in the middle scenario, where the company will not retain a long-term competitive advantage.
growth-marketing
Growth marketing is a process of rapid experimentation, which in a way has to be “scientific” by keeping in mind that it is used by startups to grow, quickly. Thus, the “scientific” here is not meant in the academic sense. Growth marketing is expected to unlock growth, quickly and with an often limited budget.

Business model renewal

Once the company has reached a mature stage with its business model, it gets the time to renew it.

This renewal can happen in several ways. Some of them can be through:

Integration and consolidation: vertical or horizontal

horizontal-vs-vertical-integration
Horizontal integration refers to the process of increasing market shares or expanding by integrating at the same level of the supply chain, and within the same industry. Vertical integration happens when a company takes control of more parts of the supply chain, thus covering more parts of it.

Placing bets

google-other-bets

An example of placing bets into the future, is how companies like Google, have within their portfolio, a set of companies, which product and potential business model (many of them are still at development stage) is in part adjacent (like self-driving that can be used also to improve existing products) or, for now disjoined.

Those bets might become a whole new business model, company, or spin off, that might become an entity in its own.

For isntance, back in 2015, eBay spun off PayPal. Today PayPal has a market cap of over $200 billion, comapred to eBay over $40 billion market cap.

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Gennaro Cuofano

Gennaro is the creator of FourWeekMBA which target is to reach over two million business students, executives, and aspiring entrepreneurs in 2020 alone | He is also Head of Business Development for a high-tech startup, which he helped grow at double-digit rate | Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy | Visit The FourWeekMBA BizSchool | Or Get in touch with Gennaro here