Cost leadership and differentiation strategy. Competitive strategies 2019-01-08

Cost leadership and differentiation strategy Rating: 6,3/10 908 reviews

CH. 5 Flashcards

cost leadership and differentiation strategy

If consumers perceive that these unique properties are worthwhile, the company can charge premium prices for its products. In contrast to most fast-food restaurants, Checkers Drive In in the United States is a drive-through-only operation. Give source s if possible. Its mindset was hardly a love of books. Cost leaders manage to do so by emphasizing efficiency at every step of the value chain: production, manufacturing, sales, and customer service. Successful Differentiation Strategy So, what must a business do to successfully implement a differentiation strategy? According to Porter, what determines the level of competitive intensity in an industry? This strategy is usually associated with charging a premium price for the product - often to reflect the higher production costs and extra value-added features provided for the consumer. High Asset Turnover — This is focused on the timeframe your company takes to sell a product.

Next

Porter's Generic Competitive Strategies (ways of competing)

cost leadership and differentiation strategy

As part of the effort to be efficient, most cost leaders spend little on advertising, market research, or research and development. Consumers seek out not only the product itself, but are willing to pay a price premium for very knowledgeable sales staff to advise on which specialized product best suits their needs, such as higher-end cameras. For example, implementing just-in-time inventory controls for raw materials is a way to reduce financing costs of assets. This strategy worked okay enough to keep sales up but was a disaster from a profitability standpoint. This helps them grab market share and ensure their planes are as full as possible, further driving down cost. Another risk is changing consumer tastes. Based on Porter's theory, factors that determine the level of competitive intensity in an industry are also explored.

Next

Cost Leadership or Differential

cost leadership and differentiation strategy

Walmart has been sharpening its focus on everyday low prices and further pushing that strategy abroad. The implementation of a differentiation strategy requires a sales team that has the skills to effectively communicate the unique properties of the products and convince consumers that they are receiving more value for their money. Yet it also loses high-margin business the cream to the firms who are focused on high-margin targets or have achieved differentiation overall. Invent ways to create value for buyers; strive for product superiority. The rapid and dramatic changes in health care make these skills more important than ever.

Next

Focused Cost Leadership and Focused Differentiation

cost leadership and differentiation strategy

An Example Let's apply what we have learned to an example. Advertising and promotion of a product is based on its differentiating characteristics. Open Book Management, Reengineering, and Flexible Manufacturing. Not every firm is willing and able to make such investments. Key concepts related to leadership according to Huber 2010 are influence, communication, group process, goal attainment and motivation.

Next

Examples of Cost Leadership & Strategy Marketing

cost leadership and differentiation strategy

Add Remove Answers must be detailed and in paragraph format 2-3 for each please do not use what may already be posted on BrainMass. Both strategies can be applied either into a focused market or a broad market. In order for their brands to stand out, companies strive hard to make them appear different from competing brands. Meanwhile, smaller airlines try to make the most of their detailed knowledge of just a few routes to provide better or cheaper services than their larger, international rivals. A negative side to using this strategy is the large amount of advertising money that is spent in establishing your brand or image.

Next

Market Segmentation Examples and Cost Leadership Strategy

cost leadership and differentiation strategy

In this quote Jobs also points out the role of innovation as the means to providing high benefits for their customers. Amazon got caught up in this phenomenon just like the others but Amazon proved its resilience and is now awesome, albeit somewhat controversial. The company has been able to dominate the low-cost market by negotiating price-volume discounts with suppliers and building an incredibly cost-efficient distribution system. The other situation is one in which the firm faces a downward sloping demand curve — by which if the firm charges a higher price, the demand for its offering is lower and if it charges a lower price, the demand is higher. Yes, some things have changed — competitive advantages have become more fragile, and there are new recipes in the strategy cookbook to bake low cost or differentiation advantages. A low cost producer must find and exploit all sources of cost advantage. When a firm pursues differentiation strategy, it attempts to become unique in the industry, by offering those products and services, which have value to the customers.

Next

Porter's Generic Strategies

cost leadership and differentiation strategy

Customers may find the price differential between the low-cost producer and the differentiated product too large. Goods, even if they satisfy identical needs, are not always identical, homogenous. It's simply not enough to focus on only one market segment because your organization is too small to serve a broader market if you do, you risk competing against better-resourced broad market companies' offerings. In such a market there was, is, and always will be only one generic way to gain competitive advantage and that is to have the low-cost position among those making offers to customers in that market. Typically, companies that focus on this type of strategy such as Apple, can charge premium pricing since their clientele is more brand loyal and less price sensitive. Among college students, Subway targets a more narrow market segment than the segment on which McDonald's focuses.

Next

Advantages and Disadvantages of Cost Leadership

cost leadership and differentiation strategy

First, a firm could find its growth ambitions stymied. Can you help to foster a culture of continuous improvement and innovation in your team? In some settings, the need for high sales volume is a critical disadvantage of a cost-leadership strategy. This is the direct result of the multiple, additive benefits of successfully pursuing the cost leadership and differentiation strategy simultaneously. Economies of scale are created when the cost of goods and services decreases as a firm is able to increase production. The use of this strategy is primarily to gain an advantage over competitors by reducing operation costs below that of others in the same industry. .

Next