Cost leadership and competitive advantage your business. Assessment of the effect of cost leadership strategy on the. Cost leadership strategy allows mcdonalds case study. The focus of the present study was on the cost leadership strategy. A focused cost leadership strategy requires competing based on price to target a narrow market figure 5. The cost leadership strategy usually targets a broad market. Focused cost leadership and focused differentiation mastering. These two then are the subject of discussion in this paper.
Jul 21, 2019 cost leadership is the mechanism of establishing a competitive advantage by having the lowest cost of operation in the industry. Porter called the generic strategies cost leadership no frills, differentiation creating uniquely desirable products and services and focus offering a specialized service in a niche market. Low cost leadership seeks to create similar value than competitors products or services delivered at lower cost charges lower prices differentiation seeks to create higher value than competitors offers products or services with unique features keeps the firms cost structure as low as possible charges higher prices. The cost leadership, differentiation and scope strategies. Dec 29, 2016 the cost leader will be able to weather the price war due to its lower cost structure advantage.
The five generic competitive strategies semantic scholar. Focused cost leadership is the first of two focus strategies. To gain competitive advantage, small businesses can focus on different strategies, including leadership in cost, quality, innovation or customer service. Cost leadership strategy aldi is a typical hard discounted store pursuing cost leadership strategy bonn, 2010. Below are some of the examples of implementation of cost. These should be distinct groups with specialized needs. Know the advantages and disadvantages of focus strategies. Pdf a study on low cost leadership strategy 1 yu chen. Describe the nature of focused cost leadership and focused differentiation. Choose of one puts constraints on using the second published on march 9, 2015 march 9, 2015 35 likes 5 comments. These strategies are cost leadership strategy, differentiation strategy, and focus or market niche strategy. Ikea is a great example of a business with an integrated cost leadership and differentiation strategy. Costco in taiwan has been ranked into the worlds top 20th out of 560 branch stores performance, their performance is always positive. It means an orientation toward differentiation from other competitorsproducts within a focused market.
This contribution of porter 1980, 1985 has had a deep and pervasive influence on business theory and practice. Cost leadership strategy and sustainable competitive. This paper focuses on the strategy of cost leadership strategy and differentiation strategy, and discusses the advantages and disadvantages of the two strategies. There is a significant relationship between cost leadership strategy and companys performance. Michael porters generic cost leadership strategy explained. Cost leadership strategy allows mcdonalds case study template. In adopting a narrow focus, the company ideally focuses on a few target markets also called a segmentation strategy or niche strategy. The study sought to answer the following research questions. Focused costleadershipfocused differentiation integration strategy. Since then many strategists from diverse fields have examined or made. It is difficult to deploy the strategy because the management must constantly work on reducing cost at every level to remain competitive. Cost leadership, differentiation, focus flashcards quizlet. The focus strategy has two variants, cost focus and differentiation focus.
The strategies are 1 overall cost leadership, 2 differentiation, and 3 focus on a particular market niche. The purpose of this paper is to investigate the relationship between the strategic positioning of firms and the sustainability of firm performance. Oct 01, 2016 similarly, pepsicos cost leadership and the threat to substitutes strategy. Differentiation leadership focuses in providing perks that add value for consumers, while higher prices are a sort of make up for their higher costs. Strategy and product differentiation strategy on the performance of firms. Differentiation, cost leadership, and integration prezi. Assessment of the effect of cost leadership strategy ijbmi. Influence of cost leadership strategy on growth of hotel.
Cocacola produces products different from pepsico by simple modification to the ingredients, which can increase the quality of its product series and charges slightly higher prices. Some of the ways that firms acquire cost advantages are by improving process efficiencies, gaining unique access to a large source of lower cost materials, making optimal outsourcing and vertical integration decisions, or avoiding some costs altogether. A narrovlf buyer segment or market niche overall lovv cost provider strategy broad diherentiation strategy focused lovv cost strategy lovlfercost differentiation type of. Porter 1980 developed three generic strategies for business and argues that any business can focus on cost leadership, differentiation, or can adopt a cost. Cost minimization, differentiation and focus of mcdonalds. Applying this concept to the mcdonalds case, it is possible to infer that the primary generic strategy adopted by. Strongest advantage comes through leadership in a factor that is important to customers and difficult for competitors to. This strategy is especially beneficial in a market where the price is an important factor.
Cost leadership strategy the cost leadership strategy requires the sale of a standard, or nofrills product porter, 1985, p. Cost leadership means a company that reduces production costs relative to its competitors and thus can charge lower prices for its products than other companies in the industry. A critique of porters cost leadership and differentiation strategies 38 the author will also briefly examine their work. Similarly, pepsicos cost leadership and the threat to substitutes strategy. Differentiation between pepsico and coke are the different brands each comprises of. Porter, cost leadership, differentiation, ecotourism, tourist accommodation, south africa introduction mkhuze game reserve is situated in northern kwazulunatal, republic of south africa, and encompasses the plains, ranging from 90 to 150 metres above sea level, which stretch to the. Applying this concept to the mcdonalds case, it is possible to infer that the primary generic strategy adopted by the company is cost leadership gregory, 2017. List of the advantages of cost leadership styles 1. Otherwise, a strategy to be the cost leader will beat a performancebased differentiation strategy. Companies that use a cost leadership strategy and those that use a differentiation strategy share one important characteristic. He then subdivided the focus strategy into two parts. The firm can choose to compete in the mass market like walmart.
This thesis examines the fundamental tradeoff between low cost and differentiation strategy at a business strategy level. Carrefours competitive strategy cost leadership and. Does a differentiation strategy lead to more sustainable. The primary objective of a firm aiming to attain cost leadership is to become the lowest cost producer in comparison to the. Assessment of the effect of cost leadership strategy on. He later subdivided focus into two different strategies. Focused cost leadership a generic business strategy that requires competing based on price to target a narrow market. Walmart,oneoftheforemostpractitioners oflow cost leadership,employsstateofthe. It sells unique products that you cant get elsewhere.
Cost leadership cheap, no expenses, differentiation unique or premium products and focus a specialised service or market. These strategies are termed generic because they can be applied to any size or form of business. Lets take a deeper look at each of porters generic strategies. Building a strategy on a differentiation requires a company to continuously invest in and develop. There are several advantages and disadvantages of cost leadership styles to consider if youre thinking about bring in this type of leader to the workplace. This research paper will focus on cost leadership and differentiation strategy. Explore the integration of cost leadership strategy. Differentiation focus unique strategy differentiation in a focused market and cost focus lower costs in. It can lead a business to become a market share leader, and consequently even a lowcost leader.
Kmarts illfated attempt to engage walmart in a price war ended in disaster, in part because walmart was so efficient in its. This business approach was first popularized by a french organization, accor. There is a significant relationship between financial. Remember, this does not concern the cost for the consumer. Focused cost leadership and focused differentiation.
Cost leadership means being an industry leader in lowcost production. In spite of basic difference in business objectives, details. It is used to reduce the cost of the operation in running the grocery store. Pdf carrefours competitive strategy cost leadership. Distinguish between cost leadership and differentiation. In either case, the basis of competition will still be either cost leadership or differentiation amit and zott 2001. Market share leadership can provide three major benefits. Porters generic strategies video the business professor. Thus, cost leadership and differentiation are the two basic strategies in porters typology. Cost leadership and differentiation strategies cost leadership approach and differentiation strategy introduction the relative position of a firm in an industry determines whether the company makes profits above or below the industry average. The cost leadership strategy allows a firm to achieve a stronger position than its. Stay connected to your students with prezi video, now in microsoft teams. A differentiation strategy involves the firm creating a productservice, which is considered unique in some aspect that the customer values because the customers needs are satisfied. Differentiation strategy is about creating a unique business proposition, that adds value to the.
Unique features and control cost to same or original levels value driverconsumers willing to pay premium price. A firm that follows this strategy does not necessarily. A firm that follows this strategy does not necessarily charge the lowest prices in the industry. The effects of cost leadership strategy and product differentiation strategy on the performance of firms. Product differentiation being the most commonly used one of these two strategic typologies spencer, joiner, and salmon, 2009. Types of strategies cost leadership,differentiation, focus. Pdf carrefours competitive strategy cost leadership and differentiation. In either case, the basis of competition will still be either cost leadership or differentiation.
Competitive advantage is found to be gained by cost leadership, differentiation, and focused strategies porter, 1980. Below are some of the examples of implementation of cost leadership strategy used by aldi stores. These initial strategies as described by porter were. Cost leadership strategy allows mcdonalds to keep production sots and customer prices low.
Cost leadership, differentiation, focus on cost leadership, focus on differentiation, and integration cost leadership differentiation strategy. The study focuses on cost leadership strategy and sustainable competitive advantage of naivas supermarket chain in kenya. Cost leadership is a term used when a company projects itself as the cheapest manufacturer or provider of a particular product or commodity in a competition. Pdf the effects of cost leadership strategy and product. Differentiated, imitation, innovation, efficiency, merchandising, and sustainable. Companies that use a cost leadership strategy and those that use a differentiation strategy share one. However, choosing the right competitive strategy cost leadership, differentiation or focus requires knowledge of own and rivals cost structure. Introduction in this paper i have evaluated michael porter. The effects of cost leadership strategy and product differentiation. However, a differentiation strategy may also be associated with greater risk. Labor costs and utilities account for another one fourth of total cost. Research indicates that differentiation and cost leadership can. A case study find, read and cite all the research you need on. Ta b l e 1 comparison of cost and differentiation strategies.
Pdf carrefours competitive strategy cost leadership and. The firm can choose to compete in the mass market like walmart with a broad scope, or in a defined, focused market segment with a narrow scope. This leadership style will also look for cost controls, overhead efficiencies, and cost minimization in all possible departments. The paper argues that pursuing a differentiation strategy leads to more sustainable financial performance compared to following a cost leadership strategy. Seeks to create a higher value for customers than the value that competitors create. Differentiation strategy is built on a belief that one needs a clear and unique positioning. The following table illustrates porters generic strategies. The growth strategies are embedded in these generic strategies.
Carrefours competitive strategy cost leadership and differentiation. Cost leadership is one of three generic business strategies discussed by porter in his wellknown book, competitive strategy1980. Cost leadership is a concept developed by michael porter, used in business strategy which describes a way to establish a competitive advantage. Low cost and differentiation strategy may be compatible. Cost leadership is the mechanism of establishing a competitive advantage by having the lowest cost of operation in the industry. Business level strategy explained strategy training. Essentially, a firm that follows a cost leadership strategy attempts to earn higher returns and competitive advantages through offering products or services at the lowest prices in the industry. In addition, practical conceptions and applications of the incompatibility of strategies practice will be examined as a complement to the literature base theory in order to shed some light on the relationship between theory and practice. Essentially, a firm that follows a cost leadership strategy attempts to earn higher returns and competitive advantages through offering.
In the case of cost leadership, one advantage is that cost leaders emphasis on efficiency makes them well positioned to withstand price competition from rivals table 5. A focused cost leadership strategy requires competing based on price to target a narrow market table 5. The cost leader chooses a low to moderate level of product differentiation relative to its competitors. A critique of porters cost leadership and differentiation.
The cost leader will be able to weather the price war due to its lower cost structure advantage. If firms try to maintain cost leadership as well as differentiation at the same time, they may fail to achieve either. No company can totally avoid the impact of increasing costs. A critique of porters cost leadership and differentiation strategies.
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