Cost Leadership and Differentiation

Topics: Price, Product differentiation, Marketing Pages: 2 (521 words) Published: August 28, 2011
I.Cost Leadership & Differentiation strategies
A/ My perspective on the issue
As far as I’m concerned, cost leadership and differentiation are the most popular strategies applied in business battlefield. Each has its own pros & cons, aims and sticks firmly to companies’ different long-term goals. And here are my brief comparison tables between them :

Cost leadershipDifferentiation
Staples Provide customers with standardized products at the lowest pricesProvide customers with products having unique features, characteristics ImplementationReduce the cost of production (substitute materials, efficient-scale facilities, new production technology...) to make up for the competitive price they charge customersCharge customers higher prices owing to products’ unequalled features to compensate for the cost of product innovation Customers aimed at_Have no need for uniqueness or have weak purchasing power _Seek for standardized products with a low price._Have aspiration for uniqueness _Willing to pay for their desire

Risks and challenges_ Competitors’ imitation of low pricing _Technological innovations of competitors (the same product – lower price or vice versa) _Challenge of adding more value for products due to exponentially increasing demands of customers

_ Imitators providing the same product with lower price
_ Counterfeiting
_Negative changes in customer's perception of the value of the company's differentiation (challenge of building prestige) _ Challenge of adding more value for products due to exponentially increasing demands of customers

Figure 1. Brief comparison between cost leadership and differentiation strategies Poster’s five forces of competition modelCost leadershipDifferentiation Rivalry against existing competitorsOnce a company holds the lowest cost position in the market, its competitors will hesitate to compete in terms of priceOnce a product’s meaningful uniqueness makes purchasers highly satisfied, it may build up...
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