Solved: Distinguish between the two kinds of competitive strategies. Explain the use

Distinguish between the two kinds of competitive strategies. Explain the use and importance of each.

Expert Answer

1.   cost leadership
2.   Differentiation

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cost leadership
Some companies compete by offering products at the lowest prices possible. They

How to attain cost leadership
•   Attained through efficient cost cutting mechanisms, especially in the supply chain. depends on economies of scale, industry, overheads and fringes control etc
•   Needs a culture of frugality
•   Some industries like grocery retail, it is difficult to differentiate. When differentiation is difficult as in commodities like rice. Petrol etc. cost cutting is the only way.
•   Also, some market demand cost cutting

Advantages -uses
•   Volume sales possible leading to increased bargaining power
•   Greater market share and profits overall
•   Sometimes difficult for competitors to attain a similar level of scale economies
•   Better chances of overcoming tough times during economic downturns

•   Greater investment in supply chain
•   Technology changes make investments in old facilities obsolete
•   Very difficult in a dynamic environment
•   The firm may seek to decrease costs for functions like R&D which are essential in the long term
•   Firms may seek to minimize research and development costs, customer service or marketing research costs, yet these are expenses the firm may need critically to incur in order to remain competitive.
•   Quality products are usually low


In some industries like high-tech. designer wears etc., m, differentiation of product and service is the key to success
When competition is too high and cost cutting has reached a saturation point, differentiation may be only option available

How to Differentiate
Product, product mix, distribution, pricing, branding, service, after-sales service etc
•   Branding – designer wear e.g. Gucci
•   Service- south west airlines
•   Technology e.g. laser vs. inkjet printing
•   features
•   quality/value e.g. Disney
•   distribution- e.g. Xiaomi and Dell

The strategy needs a culture of creativity

Advantages- uses
•   Consumers are willing to pay more.- premium, pricing is possible
•   Less cost pressure
•   Increased brand loyalty and stability

•   At times of economic downturns, e consumers may turn to cost savings
•   Huge investments in R &D
•   Sustained pressure to remain unique
•   Imitation by other players

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