Cost Vs. Differentiation

What are the strategic market approaches? 

Michael Porter, Professor at Harvard Business School, developed a Generic Strategies model for Competitive Advantage. He describes three basic strategic options available to organisation’s for gaining competitive advantage. These are Cost, Differentiation and Focus Strategies.

The choice of which strategy a business should pursue underpins every other strategic decision that is made, so it is worth spending time to get it right.

What is a strategic cost leadership market approach?

Cost Leadership is based on the idea of gaining efficiency, exploiting economies of scale and reducing the overall cost structure. This way the business is able to offer to the market products that are cheaper than its rivals and gain competitive advantage.

How would an organisation take a cost leadership strategic approach?

A strategy of cost leadership requires close cooperation between all internal functional areas of a business. They need to show:

  • High levels of productivity
  • High capacity utilisation
  • Use of bargaining power to negotiate the lowest prices for production inputs
  • Lean production methods such as Just in Time.
  • Effective use of technology in the production process
  • Access to the most effective distribution channels

What are examples of companies that have a cost leadership strategy?

Companies such as Aldi or Lidl are good examples of organisations that operate with a cost leadership strategy.

What is a strategic differentiation market approach?

In this way, companies that pursue a Differentiation strategy win market share by offering unique features that are valued by their customers. 

How would an organisation take a differentiation strategic approach?

To make a success of a Differentiation strategy, organisations need:

  • Good research and development, continuous improvement and innovation
  • The ability to deliver high-quality products or services
  • Effective sales and marketing so that the market understands the benefits offered by the differentiated offerings.
  • Dedication to improving customer service by providing focus groups and feedback opportunities

What are examples of companies that have a differentiation strategy?

Companies such as Dyson, Dell and Apple are good examples of organisations that operate with a differentiation strategy.

To find out more on Cost Vs Differentiation analysis and how to conduct this for your organisation, then view the full Knowledge paper.

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Cost Vs. Differentiation

 

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