Cost Leadership Strategy
This strategy emphasizes efficiency. By producing high volumes of
standardized products, the firm hopes to take advantage of
economies of scale and experience curve effects. The product is
often a basic no-frills product that is produced at a relatively
low cost and made available to a very large customer base.
Maintaining this strategy requires a continuous search for cost
reductions in all aspects of the business. The associated
distribution strategy is to obtain the most extensive distribution
possible. Promotional strategy often involves trying to make a
virtue out of low cost product features.
To be successful, this strategy usually requires a considerable
market share advantage or preferential access to raw materials,
components, labour, or some other important input. Without one or
more of these advantages, the strategy can easily be mimicked by
competitors. Successful implementation also benefits from:
* process engineering skills
* products designed for ease of manufacture
* sustained access to inexpensive capital
* close supervision of labour
* tight cost control
* incentives based on quantitative targets.
Examples include low-cost airlines such as EasyJet and Southwest
Airlines, and supermarkets such as KwikSave.
Differentiation Strategy
Differentiation involves creating a product that is perceived as
unique. The unique features or benefits should provide superior
value for the customer if this strategy is to be successful.
Because customers see the product as unrivaled and unequaled, the
price elasticity of demand tends to be reduced and customers tend
to be more brand loyal. This can provide considerable insulation
from competition. However there are usually additional costs
associated with the differentiating product features and this could
require a premium pricing strategy.
To maintain this strategy the firm should have:
* strong research and development skills
* strong product engineering skills
* strong creativity skills
* good cooperation with distribution channels
* strong marketing skills
* incentives based on subjective measures
* be able to communicate the importance of the differentiating
product characteristics
* stress continuous improvement and innovation
* attract highly skilled, creative people
Segmentation Strategy
In this strategy the firm concentrates on a select few target
markets. It is also called a focus strategy or niche strategy. It
is hoped that by focusing your marketing efforts on one or two
narrow market segments and tailoring your marketing mix to these
specialized markets, you can better meet the needs of that target
market. The firm typically looks to gain a competitive advantage
through effectiveness rather than efficiency. It is most suitable
for relatively small firms but can be used by any company. As a
focus strategy it may be used to select targets that are less
vulnerable to substitutes or where a competition is weakest to earn
above-average return on investments.
