What are the benefits and risks associated with combining overall cost leadership and differentiation strategies?
What will be an ideal response?
Firms that successfully integrate both differentiation and cost advantages create an enviable position relative to industry forces. For example, Walmart's integration of information systems, logistics, and transportation helps it drive down costs and provide outstanding product selection. This dominant competitive position, along with its excellent reputation, serves to erect high entry barriers to potential competitors that have neither the financial nor the physical resources to compete head to head. Walmart's size, with its $485 billion sales in 2016, provides the chain with enormous bargaining power over suppliers. Its low pricing and wide selection of merchandise reduce the power of buyers (its customers) because there are relatively few competitors that can provide a comparable cost-value proposition. This reduces the possibility of intense head-to-head rivalry and protracted price wars. Finally, Walmart's overall value proposition makes potential substitute products (e.g., Internet competitors) a less viable threat.
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