What Is a Combination Strategy?
A combination strategy is a resource used by corporations or businesses to further their identified business goals at the same time. Usually, businesses pursue goals like growth, consolidation or other interests that include stability, with the aim of improving their overall performance. Some strategies that may be combined include differentiation, cost and the system by which a company focuses on an identified market niche. All of these strategies are geared toward increasing or improving the competitive advantage of a business.
One of the components of combination advantage is the differentiation strategy. This strategy involves a targeted effort by a business to make its product or service to be perceived as unique and innovative in a market that is full of similar products or services. Companies use various methods to confer this feeling or perception of uniqueness upon their own brand of a product, which already exists in different forms. Such methods include unique packaging, mystery ingredients, or clever promotions. The uniqueness of the product or service is the differentiating factor.
Another component of a combination strategy is the cost leadership strategy whereby a company deliberately sets out to utilize all the resources at its disposal to make its products the most cost-effective. Such resources may include the utilization of cheaper labor through outsourcing or locating production plants in countries with cheap labor as well as a management of distribution costs through the identification of effective distribution channels. Reducing the operating expenditures pays off in terms of reduced costs to consumers. This type of strategy may help the company earn competitive profits, while still attracting customers due to its low price.
The third component that may be included in a combination strategy is the focus strategy in which the company selects a niche for concentration. Such a niche could be based on geographic considerations, or by identifying a particular segment in the market. For instance, a company that manufactures female apparel may choose to concentrate on the production of products aimed at teenage girls exclusively. The main reason for this segmentation is the belief that a company will perform more efficiently if it focuses all of its resources on just one market segment.
Combination strategy is the combination of any of these strategies at the same time. As such, a company might decide to utilize a differentiation and focus strategy at the same time instead of just concentrating on one. The combination could also be between the cost leadership and the focus, or any other combination the business deems fit.
In the wake of the most recent recession in the United States, it seemed to become common practice for companies to choose to reduce the size or, in some cases, the quality of their products rather than raise prices for already cash-strapped consumers.
This was very evident in the snack food industry. Candy bars, for example, where 10% to 20% smaller in size, but remained the same price.
Companies were hoping that the consumer would be glad the price didn't go up and wouldn't notice the change in size.
Companies have to be careful when implementing a cost reduction strategy.
If efforts to cut costs result in noticeable changes in quality of a product, consumers may be willing to pay a little more for a competitor's product that they consider to be superior.
In addition, reducing cost through scaling back the company's work force could prove to be counterproductive.
Mass layoffs lowers morale for remaining employees. This is only exacerbated if the remaining employees are asked to produce more and work longer hours for little or no extra pay.
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