When it comes to running a small business, either an independent startup or a franchise investment, there are a number of business strategies that can be used to ensure success – and each varies depending on the company-specific situation. For example, newer businesses will face a different set of challenges than a business that has been around for decades, which means the business strategy the newer business chooses to implement will most likely differ from their key competitors.
The four most common types of business strategies are growth, product differentiation, price-skimming, and acquisition.
Growth strategies involve introducing new products to the market, or adding new features onto an already existing product. To keep up with competitors, small businesses need to change its product line or increase its quantity output. One example is the cell phone industry. Cell phone manufacturers are constantly coming up with new technological features to add to their models, and the business that fails to keep up with these emerging trends and consumer demand won’t be able to stay in business long.
Product differentiation is a business strategy in which companies will use a key performance factor to set themselves apart from their competition, like superior customer service or product quality. For example, a franchisee offering air quality services can gain a reputation for being fair by not price gauging or using scare tactics to close a sale, therefore offering excellent customer service. Using a product differentiation strategy can help to build brand loyalty.
Price-skimming strategies entail charging higher prices for a product, especially during its introduction phase, and is used to recover from its manufacturing and/or advertising costs. There are several disadvantages associated with price-skimming, though. The first is that the product or service needs to be incredibly unique to justify the sky-high prices, like a new technology (think solar panels, etc.). Another disadvantage is that the high margins tend to attract competitors very quickly.
Acquisition means purchasing another company and either merging it with your existing company or running it separately. Think about a grocery store operator who lives in California who buys a grocery store chain in Nevada to expand operations.