Question

How can a business-level strategy of (a) low cost and (b) differentiation offer some protection against competitive forces in a company’s industry?

Answer 1

Answer:

Let's first understand the brief meanings of Low-cost strategy and product differentiation strategy as mentioned below:

Low-cost strategy refers to lowering down the overall cost of production and utilizing these cost-benefits by passing to the customers or the end-users.

Product differentiation strategy refers to produce or serve the company's product/service in a way that differentiate them from all of the other company (competitor's) offering in order to get higher value for such differentiated product.

Now, we will understand how these both strategies are useful to face the competitive forces as mentioned below:

(A) Low-cost strategy:

1. Lower cost products give added benefits to substitute or alternative products.

2. Low cost will encourage an organization to assimilate expenses will increment which will be gone on downstream by intense suppliers.

3. The Low-cost organization is generally best situated to survive esteem rivalry in its business.

(B) Differentiation:

1. Differentiation helps an organization in charging the premium price for its product resulting in a higher profit per unit.

2. Differentiation helps an organization in creating a unique brand itself in the brains of the consumers, which creates a long term strong bond with the customers.

3. Differentiation helps an organization by giving better style, better purpose, quality, unbeaten capacities, etc.