Explain the difference between a cost-leadership strategy and a differentiation strategy. Provide an example of a company that uses each type of strategy.

Question

What will be an ideal response?

Answer 1

A cost-leadership strategy is to keep the costs, and hence prices, of a product or service below those of competitors and to target a wide market. This puts the pressure on R&D managers to develop products or services that can be created cheaply, production managers to reduce production costs, and marketing managers to reach a wide variety of customers as inexpensively as possible. Firms implementing the cost-leadership strategy include Timex, computer maker Acer, hardware retailer Home Depot, and pen maker Bic.

A differentiation strategy is to offer products or services that are of unique and superior value compared with those of competitors but to target a wide market. Because products are expensive, managers may have to spend more on R&D, marketing, and customer service. This is the strategy followed by Ritz-Carlton hotels and the makers of Lexus automobiles. This strategy is also pursued by companies trying to create brands to differentiate themselves from competitors. Coca-Cola spends millions of dollars a year on ads.