Following topics are discussed in this section:
- Least cost relates to a lower cost flow than competition for an otherwise equivalent product or service.
- Differentiation relates to a product or service with more features, options or models than the competitive.
- Focus relates to weather the product or service is designed for a broad audience or a well-defined market segment or segments.
Common business strategies that are generic to many industries and manufacturers include the following variations:
- Best Cost
Creates a hybrid, low cost approach for providing a differentiation product or service.
- Low Cost
Focuses on delivering low price and no frills basics with prices that are hard to match.
- Broad Differentiation
Creates product and service attributes that appeal to many buyers looking for variety of goods.
- Focused Differentiation
Develops unique strategies for target market niches to meet unique buyer needs.
- Focused Low Cost
Designed to meet well-defined buyer needs at a low cost.
- Best Cost
- Competitive advantages mirror the strategies used to create them
- A competitive advantage exist when an organization is able to provide the same benefits from a product or service at a lower cost than a competitor (low cost advantage), deliver benefits that exceed those of competitor’s product or service (differentiation advantage) or create a product or service that is better suited to a given customer segment than what the competition can offer (focus advantage). The result of this competitive advantage is superior value creation for the organization and its customers.
Low-Cost Advantage Strategies
- A low-cost strategy should not be confused with target cost.
(Definition) Target Costing is the process of designing a product to meet a specific cost objective. Target costing involves setting the planned selling price, subtracting the desired profit as well as marketing and distribution costs, thus leaving the required manufacturing or target cost.
- In many cities, this strategy had resulted in the opening of numerous “dollar stores” where majority of the products are only one dollar and the selection is huge.
- Providing a product or service at the lowest price is generally not compatible with either differentiation or focus (niche marketing) strategies.
- The lower profit margins provided by this approach are more consistent with mass marketing.
Product or Service Differentiation Advantage Strategies
- Determining how to differentiate a product or service begins with a competitive analysis of other firms in the market to see what they have to offer.
(Definition) Competitive Analysis is an analysis of a competitor that includes its strategies, capabilities, prices and costs.
- Once a firm has analyzed the offerings of competitors, it may differentiate its products and services in a number of ways. This is known as product differentiation.
(Definition) Product Differentiation is a strategy of making a product distinct from the competition on a non-price basis such as availability, durability, quality or reliability.
Supply chain strategies appropriate to product differentiation include:
- Modular design combined with postponement to allow last-minute customization to meet specific consumer demands.
- Minimal inventory of the base model to prevent obsolescence and expand the inventory of options.
- Collaboration with suppliers to develop innovative designs, numerous options appealing to different customer tastes, artistic design and so on.
Focus Advantage Strategies
Niche Marketing (vs Mass Marketing)
- Firms can choose to develop products and services for a mass market or for a relatively small slice of a layer market – a market niche.
- Depending upon the niche, sourcing may focus more on finding special expertise or high-quality materials rather than on low-cost labor.
- Perhaps the most obvious example of responsiveness is the fast-food industry that grew up in the last half of the 20th century, led by McDonalds.
- Supply chains designed for responsiveness may rely on substantial supplies of safety stock to avoid outages (overstocked seasonal items typically go on sale at the end of the season).
- They may also have multiple warehouse to place products nearer to user.
- Third-party providers of rapid transportation, such as package delivery services were developed to suit the needs of such supply chains.
Choosing Business Strategies
- While some firms may focus primarily on one business strategy, others may pursue a mix strategies.
- For example, providing high quality at the lowest price is a challenge. But not all the strategies are mutually exclusive.
- Product differentiation and niche marketing fit well together. Either responsiveness or low cost may be a key competitive factor that differentiates a firm from its market rivals.
- Once an organization has decided on a business strategy, it uses these choices to drive the organizational strategy and eventually the supply chain strategy.