Question

Describe the circumstances under which a firm chooses a low-cost strategy to attain sustainable competitive advantage. What about the situations when a differentiation strategy is chosen? Provide specific real world examples.

Answer 1

LOW COST Strategy
The low cost startegy is used for firms who do not distinguish the goods which are very close to those sold by the competition. To maintain a comparative edge, the company holds the price for its goods cheaper than rivals under low cost policy. Customers find the goods identical to all players in these market segments, and are thus fairly price sensitive and cost aware.
To order to achieve sustainability while maintaining low prices, the utilization of energy must be increased for an enterprise. So, e.g. In the case of SouthWest airlines that followed the cost leadership approach, the aircraft were grounded for a limited amount of time and were mainly placed in the airfly. Plenty of Short Service Restaurants will also deliver reduced prices by easily turning tables around.
Higher usage means that the fixed cost is distributed over greater quantities or quantities of output, thereby reducing the cost per unit. The benefits that accrue from economies of scale are passed on to customers in the form of low cost pricing. When confirmed, the higher performance levels often contribute to higher market share and this is a string entry obstacle for any emerging entrants because they can not deliver low cost at lower production rates.
In fact, costs are kept down by lower flexibility and higher standardization rates. Things and facilities are added to essentials and no-frills. Often, engineering methods are used to use common components to improve the pace of product production. The production facility is also based in locations where leases are smaller, labor is available at cheaper rates and total spending can be kept down and keep prices down and keep costs down. Often, publicity and promotion as well as selling and delivery costs are kept small enough that the total cost perception pervades the company as a whole.
Bulk procurement helps pressure vendors and offer cost benefit and better delivery bonus days as well. Through Every Day Low Pricing (EDLP), Walmart is able to buy goods from manufacturers to receive pricing benefits so that it can eventually pass the gain back to consumers.
DIFFERENTIATION Strategy
In this, companies seek to preserve comparative advantage by discriminating between goods and competition. This is useful when consumers aren't too responsive to price but are searching for consistency and more usability and benefits. A business that has used this technique effectively is Apple who has consistently outstripped the competition by producing innovative products in mp3 players, ipads, notebooks and even mobile phones. Another source is motor room Mercedes Benz.
In the case of crowded market, increased competition, consumers have particular requirements that can be met with tailored and exclusive goods, differentiation strategy is very beneficial. Organizations in this situation have special advantages and skills such as licenses and intellectual properties that can not be readily replicated by anyone. In this situation, because of increased prices, the goods are sold at premium, and are advertised by celebrities. The brand loyalty is also high due to mark value and product individuality. While costs are high, the higher price balances the same and the business will still be competitive with differentiation strategy.
Marketing must always be top notch and marketing must be able to retain a higher perceived quality in the eyes of the consumer should rivalry emerge with a comparable product. Starbucks' use of this tactic to compete with other players has been very effective. A lot of luxury companies are now following this expansion approach.

Given increased prices, the differentiation approach may not be suitable for small companies that can not afford high investment. It's primarily for big corporations. Therefore, unlike cost leadership that entails a emphasis in all divisions, the separation approach includes concentrated research in either one or a few divisions.