A firm that adopts a cost leadership strategy sets out to become the
low-cost producer in its industry and must find and utilise all sources of
cost advantage (Porter, 1985). Cost advantage can come from different
sources, such as the pursuit of economyof scale, proprietary technology,
preferential access to rawmaterial, etc. andwill depend on the structure
of the industry (Auzair & Langfield-Smith, 2005; Govindarajan, 1988).
On the other hand, a firmadopting a differentiation strategy seeks to be
unique in its industry along some dimensions that are widely valued by
buyers. This firm must select one or more attributes that many buyers
see as essential, and uniquely position itself to meet those needs.
Differentiation may be based on several factors, such as the product
itself, the delivery system, themarketing approach, etc. (Dess and Davis,
p. 198). The characteristics of cost leadership and differentiation
strategies are shown in Table 1.