Low-Cost leadership strategy
This aims to achieve competitive advantage by way of providing a product or service at a cost that is
less than that of rivals. Competitive advantage arises when the firm is able to earn higher profits than
its rivals by charging a product at market prices. Economic factors that sustain a low-cost leadership
strategy include high economies of scale, high experience curve benefits, and varying degrees of vertical
integration.
Benefits:
• Low production cost = higher profit.
• Allows the company to enter new markets.
• Most successful in price-sensitive markets.
• Creates barriers of entry to the industry
How to achieve cost leadership:
•Reduce unit costs (e.g. generic designs).
•Use cheaper materials.
•‘No frills’ products.
•Increase productivity.
•Achieve economies of scale.
•Achieve ‘learning curves’.
Differentiation
Differentiation enables the firm to attempt efforts to distinguish its products from those of its rivals.
Differentiation strategies are based on
•providing products/services unique or different from those of competitors.
•providing customers with products or services that are perceived (or actually) higher in
value than those offered by rivals.
•increasing the buyer’s satisfaction
•increasing the buyer’s perceived value.
Benefits:
•Product/service will command a higher price.
•Demand for product/service will be less price elastic.
•Above average profits can be earned.
•Creates barriers to entry to new businesses wishing to enter the industry