Low Cost or Differentiation
1. Using scenario planning, analyze the pros and cons of each alternative.
Alternative of low cost
Pros
* New traffic for budget conscious customers * More sales volume
Cons
* More needed space to hold product * Less product available because selling product faster * More labor required for replenishment of inventory and store front * More disgruntled employees from sheer volume of customers * High employee turnover from stress
Alternative of differentiation
Pros
* Highlights company strengths and niches * Attract target customers * Higher revenue per transaction * Lower cost because specialized inventory needs less space
Cons
* Alienate customers that can’t afford higher cost of product * Higher market risk because business is less diversified
Alternative of using both low cost and differentiation
Pros
* More customer volume * More diversified customer base * More opportunities through greater sales options
Cons
* Need more space * Labor will feel more drained due to employees needing to have more product knowledge on a higher volume of product * Low cost diminishes the prestige and experience of the high cost * Low cost stigma diminished by expensive product
2. Think about the various clothing retailers in your local malls and city, and analyze the choices they have made about how to compete with one another along the low-cost and differentiation dimensions.
Low cost
Macy’s has gone to lower price points and over time lost prestige in the market. Macy’s has attempted to go for more volume but because of the recession was always empty whenever I walked into the store. They stopped lower cost because they didn’t want to lose appearance of the go to fashion locale, instead they were being viewed as the cheaper last season stop. Macy’s is now trying to stop the decline in their reputation but are still stuck in the middle, like the example in the book.
Alternative of low cost
Pros
* New traffic for budget conscious customers * More sales volume
Cons
* More needed space to hold product * Less product available because selling product faster * More labor required for replenishment of inventory and store front * More disgruntled employees from sheer volume of customers * High employee turnover from stress
Alternative of differentiation
Pros
* Highlights company strengths and niches * Attract target customers * Higher revenue per transaction * Lower cost because specialized inventory needs less space
Cons
* Alienate customers that can’t afford higher cost of product * Higher market risk because business is less diversified
Alternative of using both low cost and differentiation
Pros
* More customer volume * More diversified customer base * More opportunities through greater sales options
Cons
* Need more space * Labor will feel more drained due to employees needing to have more product knowledge on a higher volume of product * Low cost diminishes the prestige and experience of the high cost * Low cost stigma diminished by expensive product
2. Think about the various clothing retailers in your local malls and city, and analyze the choices they have made about how to compete with one another along the low-cost and differentiation dimensions.
Low cost
Macy’s has gone to lower price points and over time lost prestige in the market. Macy’s has attempted to go for more volume but because of the recession was always empty whenever I walked into the store. They stopped lower cost because they didn’t want to lose appearance of the go to fashion locale, instead they were being viewed as the cheaper last season stop. Macy’s is now trying to stop the decline in their reputation but are still stuck in the middle, like the example in the book.