Experts and successful business owners offer three main strategies that are available to all businesses, regardless of size.

The least-cost strategy: Under this option, businesses sell uniform, standard products. Demand for these products usually fluctuates. An increase in price can cause a sharp drop in sales because 

1. demand is price driven and supply is high, or 
2. there are plenty of competitors who can supply substitutes at lower prices. 

Customers seek out lowest-price producers, so businesses pursuing a least-cost strategy put their emphasis on constantly reducing their cost. They do this by increasing their productivity, looking for other sources, buying in larger volume, and buying by annual contracts to get the best possible discount.

The differentiation strategy: A business using this approach will offer products that are completely different from the competition. This difference can be in the form of better quality, more features for the money, exceptional customer service, or anything else that makes the product or service significantly more valuable to the customer than competitors' products or services.

Goods are priced well above costs, which leaves the business with the necessary cash to introduce new products. The key to the success of this strategy is to stay closely in tune with the changing wants and needs of customers.

The niche strategy: By selecting the right niche, or highly specialized market, businesses concentrate on providing high-priced products or services to a very limited number of customers. By focusing on a niche, businesses often avoid serious competition because the market is too small or too specialized to support more than a few suppliers. Customer satisfaction and quality are the keys to success here.

In picking a way to go, most small businesses opt for a differentiation or niche strategy, or a combination of both. The least cost strategy really does not work for small companies - unless you are a part of a franchise that gives you purchasing power.

The reason the least-cost strategy does not work is that small businesses do not have the buying power that larger businesses do. As the larger competitors increase their market share, they can reduce unit costs. As their business grows to dominate its market, costs are continually whittled down. In other words, the larger the market share, the lower the costs.

Accordingly, the dominant player in a market is in the best position to pursue the least-cost strategy. It and others with significant market shares are also in very strong positions to keep new players out.

The message is clear: Avoid facing off against established players in a market for basic products dominated by a small number of competitors - unless you are prepared for a long and costly business battle.

Better: Concentrate on your business strengths. Use differentiation or superior service or some other edge to gain an obvious advantage over the competition. Focus on appealing to the customer that isn't buying strictly on price. You can do this by:

• Bringing new products to market;
• Offering products or services to a market audience where you have the most experience; or
• Finding a highly fragmented market where there are no clearly dominant competitors.