Strategic positioning is shaped by a range of internal and external factors that determine what is achievable and sustainable in a competitive environment.
Internal Influences on Positioning Strategy
Internal influences are factors within the control of the business. These include the business’s own resources, its internal capabilities, leadership, workforce, and brand. They shape the strategic options available and influence how effectively a business can implement a particular positioning strategy.
Company Resources and Capabilities
The availability and quality of internal resources and the firm’s capabilities are key to determining which strategic position a business can realistically adopt.
Financial Resources
A company with strong financial backing can invest in long-term strategies such as product innovation, global expansion, or brand development.
Firms with weak finances may be forced to focus on cost-saving measures and avoid high-risk strategies, making cost leadership or niche cost-focus positions more appropriate.
For example, a startup with limited capital is unlikely to be able to compete on brand-based differentiation in the short term.
Human Resources
A skilled and experienced workforce is critical for pursuing differentiation strategies that rely on innovation, quality, and customer service.
Creative industries, such as fashion or technology, depend heavily on human capital for unique product development.
For instance, a design-led company like Dyson depends on its engineers and designers to create innovative, high-performance products that justify premium pricing.
Operational Capabilities
The internal efficiency and capacity of operations impact a firm’s ability to compete on cost or quality.
Firms with lean operations, streamlined supply chains, and economies of scale can reduce their cost per unit, supporting cost leadership.
Conversely, companies with flexible, customisable production may find it easier to support differentiation strategies.
Toyota, for example, has historically relied on its lean manufacturing system (Just-In-Time production) to lower costs and improve productivity.
Technological Expertise
Technological know-how within a firm allows it to pursue innovation-driven strategies.
A company that can develop or adopt cutting-edge technologies is better positioned to offer unique products or services.
For instance, Apple’s in-house chip design and R&D capabilities support its high-end, differentiated market positioning.
Brand Strength and Reputation
The business’s brand image and customer perception significantly affect its ability to adopt and sustain particular strategic positions.
Strong Brand Identity
A well-known, trusted brand allows a company to charge premium prices and maintain customer loyalty.
Strong brands can serve as a barrier to entry for competitors and make differentiation more effective.
Example: Rolex’s luxury brand reputation allows it to target a niche market with high price points.
Weak or New Brands
A new brand lacks the recognition or trust to command high prices and may need to offer lower prices, free trials, or promotions to attract attention.
These firms often adopt cost-based or focused strategies until they can build a strong market presence.
Consistency and Trust
Maintaining a consistent brand message and delivering reliable customer experiences builds long-term loyalty.
This is particularly important in service-based industries, where differentiation is based on experience rather than product.
Organisational Culture and Leadership
Organisational values and leadership mindset play a key role in strategy formulation.
Leadership Vision
Senior leaders shape the business’s long-term goals and risk appetite.
Visionary leaders may steer the firm towards innovation and differentiated positioning, even in risk-averse industries.
Example: Elon Musk’s leadership has pushed Tesla into a unique position combining sustainability, innovation, and luxury.
Risk Appetite and Innovation Culture
A business culture that encourages experimentation and risk-taking is more likely to adopt bold, innovative strategies.
On the other hand, a conservative culture may prioritise efficiency, standardisation, and cost control, leaning towards cost leadership.
External Influences on Positioning Strategy
External influences originate outside the firm and include factors such as competition, customer expectations, and broader market trends. Although businesses cannot control these factors, they must respond to them strategically.
Market Conditions and Competition
The structure and dynamics of the market in which a firm operates affect what kind of positioning is possible.
Level of Competition
Highly competitive markets often lead to price wars, pushing firms towards cost-based strategies.
In such markets, only firms with significant cost advantages—like Aldi or Ryanair—can remain profitable.
Market Saturation
In mature, saturated markets, it becomes difficult to stand out unless a business can differentiate effectively.
For example, smartphone manufacturers must constantly innovate to distinguish themselves from a sea of similar devices.
Industry Growth Rate
In fast-growing markets, firms have more opportunity to experiment with innovative and differentiated offerings.
In slow-growth markets, maintaining market share becomes a priority, often through cost leadership or by protecting existing niches.
Barriers to Entry
High barriers (e.g. regulation, infrastructure costs) protect existing businesses and give them the ability to maintain strategic positions.
In contrast, low barriers invite competition and force businesses to adjust their positioning frequently to stay ahead.
Competitive Strategy of Rivals
If most competitors focus on low prices, a firm can differentiate to escape direct competition.
Alternatively, if the market is crowded with differentiators, an under-served cost-focused niche might be more attractive.
Customer Needs and Perceptions
Understanding customers is vital for determining a viable positioning strategy.
Perceived Value
A business’s offering must align with what customers value most—be it low price, high quality, innovative features, or brand status.
Positioning a premium brand in a highly price-sensitive market may fail unless the value proposition is crystal clear.
Behaviour and Preferences
Younger consumers may value sustainability, personalisation, and tech integration, influencing businesses to pursue differentiated, ethical positioning.
B2B customers may focus more on cost-efficiency and reliability, encouraging cost-based strategies.
Cultural and Regional Factors
In some countries, brand loyalty is stronger, while in others, price sensitivity dominates.
A global company may need to adapt its positioning across different regions.
Trends and Social Changes
Changes in social attitudes (e.g. towards environmental sustainability or diversity) create opportunities for businesses to reposition.
For example, clothing retailers that focus on eco-friendly fabrics may win over environmentally conscious customers.
Technological Innovation and Disruption
Technology can support or threaten a firm’s strategic position.
Innovation as Differentiator
Businesses that integrate new technologies—such as AI, IoT, or blockchain—into their offerings can stand out in the market.
Example: Peloton uses connected fitness technology to provide a unique user experience.
Efficiency and Cost Reduction
Automation, cloud computing, and data analytics allow firms to cut operational costs and pursue cost leadership without sacrificing quality.
Example: Amazon’s investment in warehouse automation has helped it become a cost and speed leader in e-commerce.
Disruption of Traditional Models
New technologies can make old strategies obsolete.
Example: The rise of streaming services (Netflix, Disney+) disrupted the traditional film and cable TV industries, forcing firms to reposition.
Fast-Paced Change
In rapidly changing industries like telecoms or fintech, the shelf life of a strategy is short.
Businesses must reassess positioning frequently to remain relevant.
Interplay of Influences: Achievability and Sustainability
Achievability
A business must determine whether a particular strategic position is realistically within its reach based on:
Its current resources and capabilities
Market constraints or opportunities
Competitive threats
For example, a luxury goods startup without brand recognition or R&D resources would struggle to succeed with a premium differentiation strategy.
Achievability also includes understanding opportunity costs: choosing one position usually means foregoing others, especially in terms of resource allocation.
Sustainability
A strategic position must also be maintainable over the long term to deliver enduring competitive advantage.
Factors affecting sustainability:
Competitor Imitation: Others may copy features or pricing.
Shifts in Customer Preferences: Changing tastes may make once-successful strategies outdated.
Technology Advances: New solutions may undercut existing offerings.
Economic Pressures: Inflation, raw material costs, or recessions may force repositioning.
Firms that maintain competitive advantage often do so by:
Investing in continuous innovation
Building emotional brand connections
Leveraging economies of scale
Adapting based on feedback and market signals
Case Studies of Strategic Influence
Amazon
Internal Strengths: Massive logistics infrastructure, data-driven systems
Market Conditions: Fast-paced, price-sensitive online retail
Strategy: Combines cost leadership (low prices, efficiency) with elements of differentiation (customer service, convenience)
Sustainability: Maintains position via reinvestment and tech-driven efficiency
Dyson
Internal Strengths: World-class R&D and engineering
Customer Perception: High-end, innovative, well-designed products
Strategy: Premium differentiation with a focus on technological superiority
Sustainability: Protected by patents, design leadership, and brand identity
Aldi
Internal Efficiency: Lean operations, limited product range
External Environment: Competing in price-sensitive grocery sector
Strategy: Cost leadership with a focus strategy—targeting value-seeking shoppers
Sustainability: Maintains advantage through private labels and scale efficiencies
Netflix
Technological Innovation: First mover in streaming and content recommendation algorithms
Customer Behaviour: Preference for on-demand, ad-free content
Strategy: Differentiation based on original content and tech-enabled experience
Sustainability: Facing new challenges due to competition and rising content costs
Strategic positioning is not a fixed decision but a dynamic response to internal strengths and external realities. Successful businesses constantly evaluate these influences to make informed strategic choices that provide both a competitive edge and long-term value.
FAQ
Small businesses often face limitations in financial resources, brand recognition, and operational capacity, which restrict their strategic choices. They typically adopt focus strategies, targeting niche markets where they can deliver unique value or operate at low cost. Large corporations, by contrast, benefit from economies of scale, established brand equity, and diversified capabilities, allowing them to pursue broader cost leadership or differentiation strategies. Their ability to invest in R&D, marketing, and advanced technology enables more sustainable and competitive positioning across multiple markets and segments.
Yes, but repositioning requires substantial investment, clear planning, and alignment with market expectations. A firm may shift from cost leadership to differentiation if it develops strong brand identity or product innovation. This transition often involves retraining staff, rebranding, and revising operational models. However, changing customer perceptions takes time, and failure to execute properly can lead to confusion or loss of market share. Successful repositioning also depends on the external environment—timing, competition, and consumer trends must all favour the new strategic direction.
Customer perception directly influences buying behaviour, loyalty, and brand engagement. If a business maintains a strategy that no longer aligns with what customers value—such as prioritising low price in a market that now favours ethical sourcing—it risks becoming irrelevant. Outdated positioning leads to falling sales, declining brand equity, and poor competitive performance. Regularly gathering customer feedback and monitoring consumer trends is vital for ensuring that strategic positioning remains aligned with the evolving needs and values of the target market.
Innovation supports both strategies, though in different ways. For cost leadership, innovation in operations—such as automation, lean production, and AI-driven logistics—lowers unit costs, enabling firms to offer lower prices without sacrificing margins. For differentiation, innovation enhances the uniqueness of a product or service, allowing businesses to justify premium pricing. This may include design features, functionality, or customer experience. In both cases, ongoing investment in innovation strengthens competitive advantage and helps maintain a sustainable strategic position.
The speed at which a business adopts new technologies affects its ability to compete and respond to market demands. Fast adopters can gain a first-mover advantage, either by offering cutting-edge differentiated products or streamlining operations for cost efficiency. Slow adopters risk falling behind competitors, especially in dynamic industries where technology evolves rapidly. Moreover, technology impacts not just the product, but also supply chains, marketing, and customer service—so speed of adoption can directly affect both the effectiveness and sustainability of a firm’s strategic position.
Practice Questions
Analyse how a business’s internal resources can influence its choice of strategic positioning. (9 marks)
A business’s internal resources, such as financial strength, operational capabilities, and skilled workforce, play a key role in determining its strategic positioning. For example, a firm with strong finances and advanced production systems may pursue cost leadership by reducing unit costs. In contrast, a business with talented designers and a focus on R&D could adopt a differentiation strategy through product innovation. These resources enable the business to deliver consistent value aligned with its chosen position. Ultimately, without the right internal capabilities, a firm may be forced to adopt a position that matches its limitations rather than its aspirations.
Explain how external market conditions can affect the sustainability of a business’s strategic position. (6 marks)
External market conditions, such as competitor actions, customer preferences, and industry trends, can significantly impact whether a business can maintain its strategic position. For instance, technological advancements may allow new entrants to undercut a cost leader or match a differentiator’s quality at lower prices. Additionally, shifts in consumer values—such as growing interest in ethical sourcing—can reduce the relevance of a firm’s current positioning. If the market becomes saturated or competitive intensity rises, sustaining a premium or low-cost strategy becomes harder. Businesses must continuously adapt to these external pressures to remain competitive and protect their long-term strategic position.
