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4 Types of Competitive Strategies

In the economics section of the BEC section for the CPA exam, you could be tested on the 4 competitive strategies as outlined by Michael Porter. According to Michael Porter, a company can take four different types of competitive strategies. Porter basically suggests that a company can either compete on cost or differentiation, but not both. The visual below illustrates how these 4 types of competitive strategies are related:

1) Cost leadership: If a company operates in a broad market (serves a broad range of customers) and they are focused on offering the lowest cost, then the strategy they have chosen is cost leadership.

2) Cost focus: If a company operates in a narrow market (serves a small range of customers) and they are focused on offering the lowest cost, then the strategy they have chosen is cost focus

3) Differentiation leadership: If a company operates in a broad market and is focused on differentiating their product by offering value or a unique feature, then the strategy they have chosen is differentiation leadership.

4) Differentiation focus: If a company operates in a narrow market and is focus on differentiating their product, then the strategy they have chosen is differentiation focus.


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