To evaluate a company's competitive strategy, an analyst should determine 1. whether the strategy creates a defence against the five industry forces, 2. whether the strategy is aligned with the external forces acting on the industry, and 3. whether the company has the resources and capabilities necessary to execute it.

There are three well-known strategies.

Cost Leadership. The company aims to become the low-cost producer in an industry or market segment while maintaining acceptable quality standards. The key objective is to offer products or services at lower prices than competitors to attract price-sensitive customers. By achieving cost leadership, a company can gain a competitive advantage, increase market share, and potentially enjoy higher profitability.

Differentiation. The company focuses on creating unique and distinctive products, services, or brand images that set a company apart from its competitors. The key objective is to offer customers something special or different that they perceive as valuable, leading to a premium price and increased customer loyalty. By successfully implementing differentiation, a company can build customer loyalty, reduce direct competition, and enjoy higher profit margins.

Focus (also known as niche or segmentation strategy). The company concentrates on serving a specific target market segment or niche with unique needs and preferences. Instead of trying to appeal to a broad market, companies narrow their focus to cater to a specific group of customers. This approach allows them to better understand and meet the needs of their chosen segment, creating a competitive advantage in that particular market.