3 Types of Corporate Strategies (Explained)

1) Cost Leadership Strategy:

Cost leadership is one of the corporate strategies aimed at achieving overall cost leadership in an industry.

In the situation where the companies compete in the industry in which the customers are highly influenced by price, cost leadership assumes strategic importance.

Therefore, it is important that the board of directors understands its cost and cost drivers. They must also be fully cognizant of exactly what constitutes their target customers’ quality.

The essential task is to deliver the requisite level of quality at the lowest possible cost, which allows the pricing strategy of penetration price.

Suppose the organization could attain a lower cost level than that of each of its competitors. In that case, it could sustain time of falling prices, and this the lower prosperity better than its competitors, thereby ensuring long-term survival.

Cost leadership might enable the organization to pursue the policies of penetration on pricing.

If the Board of Directors could estimate the total market size, then it is possible to determine what share of the market they would require to realize revenue and profit targets.

2) Differentiation Strategy:

Product differentiation involves the use of multiple products, each of which is branded and subject to promotion. Using this corporate strategy, the competitor must out of necessity to compete in many areas and strive to overcome brand loyalty through reductions in the selling price of their product offerings.

Product differentiation involves the identification of the features for which the customers are willing to pay. Product differentiation may be related to the product image, quality, reliability, durability, or post-sales support in terms of after-sales service availability and quality.

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Where the products differentiation can be achieved it may enable the board of directors to implement a pricing strategy based on market skimming, which involves setting a relatively high price stressing the attractions of the new features such as robustness, durability, and perceived quality attaching to those with a genuine interest in the product or its association attraction.

Reaction and support are thus solicited from the ‘top end of the particular market.

If the launch is successful in this ‘cream-skimming’ exercise, and the decision has been taken to invest in the possible, then the appeal of the new product can be enlarged through a shift in advertising and a reduction in price.

The price reduction can be made in stages to coincide with the supply-side increase as new resources come into use. One of the price requisites for the successful operation of a pricing strategy based on the market is difficult for competitors to come up with a similar product quickly with which they can undercut the price being charged by the organization.

If the organization can successfully archive the product differentiation it may also be possible to implement a pricing strategy based upon premium pricing.

Such a strategy would involve pricing its products above the price of the competitor’s products on a permanent basis. Such a strategy will depend on potential buyers perceiving that the product is different and superior to the competitor’s products.

3) Focus Strategy:

Niche marketing targets markets in which the company can focus on cost and quality to meet the needs of customers who comprise a specific market.

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In this corporate strategy, directors could target its products at the specific market segment, which comprises relatively well-off people willing to pay a premium for its unique feature.

It is quite conceivable that such a policy might be aimed at a particular geographical region where relatively well-off people live.

An organization might meet a need of such a niche segment of the market better than its competitors simply by the concentration of the specific focus on a narrow target market than those of market competitors.

Cost leadership would allow the organization to develop a cost-focused strategy providing niche customers with a lower-priced product than competitor offerings.

Obviously, such a niche mark would have to be sufficiently large to enable the desired levels of profitability to be attained.