Question

Companies such as BMW, Audi, Mercedes, and Tiffany are thriving these days because they are expanding their luxury brands into more affordable product lines, thus allowing them to offer their premium branded products to a wider audience. An example is Tiffany’s $75 Heart Tag Charm, the $30,000 Mercedes CLA, and the Audi A3.

Required What type of strategy (cost leadership or differentiation) is being followed by Tiffany, BMW, Audi, and Mercedes? Comment on how effective you think this strategy will be for these firms.

Answer 1

Answer: This is differentiation strategy.

Increasing efficiency through which a firm can able to offer product at the lowest cost is the cost leadership strategy. It gives competitive advantage to that firm for earning the highest profit margin. It doesn’t happening here, since the price of the product is pulling down but not the cost.

Differentiation strategy indicates using the brand value to get the wider market. It is happening here for these companies. These are all prestigious products and already have brand image; therefore, by reducing price they want to get bigger market and increasing market share.

Comment: This strategy may not be effective in the long-run. Some products are highly demanded to a group of customers (higher income group) because of their sophistication. If those products become cheap and easily available for all, such sophistication may not be there. Those customers may not be interested on such goods and their demand will fall. It creates loss of revenue earnings to those companies in future.