Cost Leadership and Differentiation
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 leadership Differentiation
Staples Provide customers with standardized products at the lowest prices Provide customers with products having unique features, characteristics
Implementation Reduce the cost of production (substitute materials, efficient-scale facilities, new production technology...) to make up for the competitive price they charge customers Charge 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 model Cost leadership Differentiation
Rivalry against existing competitors Once a company holds the lowest cost position in the market, its competitors will hesitate to compete in terms of price Once a product’s meaningful uniqueness makes purchasers highly satisfied, it may build
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 leadership Differentiation
Staples Provide customers with standardized products at the lowest prices Provide customers with products having unique features, characteristics
Implementation Reduce the cost of production (substitute materials, efficient-scale facilities, new production technology...) to make up for the competitive price they charge customers Charge 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 model Cost leadership Differentiation
Rivalry against existing competitors Once a company holds the lowest cost position in the market, its competitors will hesitate to compete in terms of price Once a product’s meaningful uniqueness makes purchasers highly satisfied, it may build