- Published: October 31, 2021
- Updated: October 31, 2021
- University / College: The University of Melbourne
- Level: Master's
- Language: English
- Downloads: 3
Discussion Firms that pursue either of the two strategies i.e. cost leadership or differentiation make equivalent returns because both kinds of firms orient their supply and demand channels around a particular strategy, and specialize in it. Their returns are equivalent because “[c]ompanies that use a cost leadership strategy and those that use a differentiation strategy share one important characteristic: both groups try to be attractive to customers in general” (2012books.lardbucket.org, 2012). Firms that pursue both cost leadership and differentiation have the highest returns because they provide the customers with the best combination of affordability and quality of experience. On the other hand, firms which are stuck in the middle of the two strategies make the lowest returns because they can neither build their image of the product of products or services of the highest quality or distinct features consistently nor that of a cost effective provider consistently. A cost leader selects product differentiation at a low to moderate level. Differentiation incurs more cost as more resources are required to be spent in making the product unique. Therefore, a cost leader goes for differentiation which is not markedly inferior to its competitors competing through differentiation, but is achievable at a low cost. A cost leader does not add a unique feature until it is wanted by the customers or it has been done by the competitors (Hill and Jones, 2008, p. 121). A cost leader attracts the customers by charging them a lower price compared to what they are charged by the competitors, but this tendency to charge the lower price is jeopardized when the cost leader also tries to become a differentiator. Consequently, revenues are reduced.
2012books.lardbucket.org. (2012). 5.4 Focused Cost Leadership and Focused Differentiation.
Hill, C. W. L., and Jones, G. R. (2008). Essentials of Strategic Management. Cengage Learning