Business Strategic Plan Components - dummies

By Stephen L. Nelson

A business strategic plan is a plan regarding how to manage the future but basing it on history and the facts contained in QuickBooks 2012 probably makes the exercise more accurate and valuable. Business Strategic Plans are composed of three components:

Cost strategies

Your business cost strategy is one of the primary components of your strategic plan.

Successful retailers rely on a cost strategy. Firms such as Walmart and Costco excel at economically providing products to their customers. They pass along a lot of the benefits of this economy to their customers in the form of lower prices.

Not all the cost savings get passed along to the consumers, however. A significant portion of the cost savings, achieved through incredibly efficient operations, are retained by the business and, therefore, become profits.

Such cost leadership or low-cost operation is one of the three basic strategies. And it’s a strategy available to any business — and particularly those businesses that have achieved economies to scale.

The key thing to note about a low-cost strategy, however, is that the firm needs to retain some of the cost savings in order to earn a higher profit level than its competitors. Thus, simply being a low-cost producer isn’t enough.

A firm needs to be a low-cost producer and still be able to price products and services at a level high enough that some of the cost savings are retained as profits.

Differentiated products and services strategies

The second basic strategy is product differentiation. Product differentiators often sell a very unusual product or service.

The Nordstrom department store chain is a good example of this because it offers unsurpassed service, and often (although not always), it offers a great and high-quality selection of items. However, Nordstrom goods cost more. But consumers happily pay the extra amount. Why? Because they get so much more for their money.

A firm that relies on a differentiation strategy competes on the basis of the special features of its products or services. The key to making this strategy work is being able to charge your customers more for those special features than the special features cost you. Differentiation needs to produce increased revenues in excess of increased costs.

Focus strategies

The focus strategy is really a hybrid of the cost and differentiation strategies. This strategy states that in some ways, a firm is really good about managing costs; and in other ways, this firm is really good about differentiating products or services.

A firm may choose to take this hybrid approach because it understands a particular audience or niche of customers or category of products; in other words, the firm can, through this focused approach, serve a particular market better than anybody else. This firm is going to be the best at serving a particular niche.

Again, as is the case with other strategies, the focus strategy must produce increased revenues that are greater than the increased cost of the strategy or cost savings (to the business) that are greater than the lower prices passed along to customers.

So, who’s a focus strategy retailer? You could say that Target is. Target as a company focuses on suburban, middle-class customers by offering those consumers almost the perfect combination of cost savings and differentiated products.