Cost leadership is a potential barrier to entry

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Issues in Achieving and Maintaining a Cost Leadership BL StrategyCompetitive risks:Source of cost advantage becomes obsolete by competitor’s innovationsBeing overly aggressive in cutting costs → At the expense of customers’ expectationson differentiated featuresBecoming too fixated on reducing costs and ignoringBuyer interest in additional featuresDeclining buyer sensitivity to priceChanges in how the product is usedTechnological breakthroughs that open up cost reductions for rivalsLow cost methods are easily imitatedby rivals14
2. Differentiation Strategy: BasicsIntegrated set of actions designed by a firm to deliver goods or services that customers perceive as being different in ways that are important to themUnique & valuable to a wide range of customers → Premium pricesEnhances profitability whenever the extra price the product commands outweighs the added costs of achieving the differentiationConfiguration of features must be difficult to imitateWhen is a differentiation strategy more appropriate:Buyer needs and uses of the product are diverseMany ways to differentiate the product or service and buyers perceive these differences as having valueFew rival firms are following a similar approachTechnological change is fast-paced and revolves around evolving features15
Various Themes on DifferentiationUnique taste– Dr. PepperMultiple features– Microsoft Windows and OfficeSuperior customer service– FedEx, Ritz-CarltonSpare parts availability– CaterpillarEngineering design and performance– Mercedes, BMWPrestige & status– RolexProduct reliability– Johnson & JohnsonQuality manufacture– Michelin (Toyota ?)Technological leadership– 3M CorporationImage, wide array of product lines – Ralph LaurenTop-of-line image– Chanel16
Three Bases for Successful Differentiation171.Focus directly on attributesProduct features, product complexity, timing of introductions, location2.Focus on relationship to consumersProduct customization, consumer marketing, product reputation3.Focus on links within or between firmsLinks between functions within firm, links with other firms, product mix, distribution channels, service and supportProduct featuresProduct mixLinks with other firmsProduct customizationProduct complexityConsumer marketingLinks between functionsTiming

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