Cost Leadership Strategy
This strategy involves the firm winning market share by appealing to cost-conscious or pricesensitive
customers. This is achieved by having the lowest prices in the target market segment, or
at least the lowest price to value ratio (price compared to what customers receive). To succeed at
offering the lowest price while still achieving profitability and a high return on investment, the
firm must be able to operate at a lower cost than its rivals
Differentiation Strategy
Differentiate the products in some way in order to compete successfully. Examples of the
successful use of a differentiation strategy are Hero Honda, Asian Paints, FILL, Nike athletic
shoes, Perstorp BioProducts, Apple Computer, and Mercedes-Benz automobiles.
A differentiation strategy is appropriate where the target customer segment is not price-sensitive,
the market is competitive or saturated, customers have very specific needs which are possibly
under-served, and the firm has unique resources and capabilities which enable it to satisfy these
needs in ways that are difficult to copy. These could include patents or other Intellectual Property
(IP), unique technical expertise
Focus Strategy
Companies that use Focus strategies concentrate on particular niche markets and, by
understanding the dynamics of that market and the unique needs of customers within it, develop
uniquely low cost or well-specified products for the market. Because they serve customers in
their market uniquely well, they tend to build strong brand loyalty amongst their customers. This
makes their particular market segment less attractive to competitors.
As with broad market strategies, it is still essential to decide whether you will pursue Cost Leadership or Differentiation once you have selected a Focus strategy as your main approach:
Focus is not normally enough on its own.
But whether you use Cost Focus or Differentiation Focus, the key to making a success of a
generic Focus strategy is to ensure that you are adding something extra as a result of serving only
that market niche. It's simply not enough to focus on only one market segment because your
organization is too small to serve a broader market (if you do, you risk competing against better resourced
broad market companies' offerings.)
The "something extra" that you add can contribute to reducing costs (perhaps through your
knowledge of specialist suppliers) or to increasing differentiation (though your deep
understanding of customers' needs).
Kavungya answered the question on May 17, 2019 at 14:59
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