Question

Define and explain the cost leadership and product differentiation generic competitive strategies. What are the specific bases for competitive advantage for each (HINT: There are six for cost leadership and 12 for product differentiation)? Provide and explain an example of a firm for each broad approach.

Answer 1

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Cost leadership is a technique used to establish a competitive advantage by the lowest cost in processes of operation in the industry. Cost leadership derives by some parameters of the industry as company efficiency, size, scale, scope, and past experience.

1. Cost leadership is a technique used to establish a competitive advantage by the lowest cost in processes of operation in the industry. Cost leadership derives by some parameters of the industry as company efficiency, size, scale, scope, and past experience.

Product differentiation strategy is used to distinguish a product or service from others, it is more attractive and effective to attract the target customers. It involves identifying and communicating the unique qualities of a company.

2. The competitive advantage of cost leadership is that it helps to increase the profit by reducing the cost of the process, increasing market share, make a reasonable profit in each sale because it reduced the price of manufacturing.

The competitive advantages of product differentiation are providing survival in the competitive market, creates the value of the organization, defending high prices, helps in non-price competition, creates brand value and loyalty, etc.

3. For an example of cost leadership, McDonald practices labor by employing and training to inexperience staff in place of skilled and experienced staff to cut down the huge amount from salaries of employees that help to provide food for a customer at a lower price.

For example to product differentiation in the automobile market where two same class vehicle and same price vehicle points by the designer of vehicles of both companies.