A niche competitive advantage is a strategy that is effective for start-ups and small businesses that do not have the resources to go after larger sections of the marketplace. Michael Porter’s General Strategies Model identifies three strategies:
Cost Leadership Strategy focuses on increasing profits by reducing operating costs and charging lower prices. This requires an investment in technology, efficient logistics and the continual cost monitoring to be able to continually beat your competitors on price. A prime example of this in the food retail is McDonald’s with their optimised food delivery, training and vertical integration where they own the facilities that produce the ingredient mixtures.
In furniture retail, IKEA has nailed standardised products, self-assembly and out-sourcing manufacturing to low wage countries. Note also that IKEA has also followed a differentiation strategy by creating a new and innovative business model. Amazon is a cost leadership star in online retail compared to bricks and mortar retailers. They achieve this by the robust and relentless pursuit of economies of scale, process automation plus advanced computing and networking technologies. While using continuous improvement of IT infrastructure, Amazon also has elements of a differentiation strategy.
Differentiation Strategy aims to make your product attractive and unique in comparison to those of your competitors. It requires an investment in creativity, innovation, being ahead of trends, the provision of high-quality products and effective marketing and sales.
Well known for its innovative products of elegance and simplicity is Apple. They distinguish themselves from their competitors through minimalist product design, a unique operating system which enhances the user experience and a pricing strategy commensurate with its level of quality.
Emirates, state-owned Airline in the UAE differentiate themselves with exceptional customer service in the form of passenger personal space, inflight cuisine and entertainment, complimentary beverages and Wi-Fi. They invest heavily in the latest technologies including advanced navigation tech.
Tesla electric vehicles have made it their mission to accelerate us toward sustainability, targeting the luxury sector and then moving into lower price points and larger market segments. They achieve differentiation through product innovation including environmental friendliness, high tech, customisation, software updates, solar panels, and self-drive features. Another key differentiator is the lack of a marketing strategy, aiming instead for referrals and word of mouth rather than TV commercials.
Focus Strategy concentrates on developing products and services for a niche market. This strategy requires a deep understanding of your customer’s needs and meeting those needs with a special something that others cannot. Focus strategy is not normally enough to win a substantial market share on its own, so needs to be teamed with either Cost Leadership or Differentiation Strategy. A niche can be a particular buyer group, unique geography, special product attributes that appeal only to certain individuals, a particular product line – e.g. tea, shared values such as “fair trade” or “free-range,” or a combination of these.
Sisterhood Women’s Travel specialises in high quality, women-only travel experiences which aim to provide community, adventure and freedom, fundamentally changing the way women experience travel. Nice Kitty Clean Treats focus on a delicious and innovative range of raw, natural and wholesome treats that are vegan, gluten, dairy and refined sugar-free. Both these companies have a niche Focus and a strong Differentiation Strategy.
If you have your sights set on going big, consider Chan Kim & Renée Mauborgne’s “Blue Ocean” Strategy. This strategy pursues Differentiation and Cost Leadership to open up a new market space and demand. You aim to make the competition irrelevant by creating and capturing an uncontested market space. Consider Apple, Airbnb, Uber, UberEats disruptors to the personal computer, accommodation, taxi and food delivery industries.
Viktoria Darabi, Founder, Savvy and Successful and Business Connect Advisor, Western Sydney Business Centre