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How cost leadership impact organizational strategy

An organization operating in a competitive market structure may choose to avoid competition through differentiation or cost leadership.A company choosing a differentiation strategy distinguishes its product or service from that of competitors by adding enough value (including quality and/or features) that customers are willing to pay a higher price. Differentiation is often related to the product or service, distribution system, or advertising.

Competition may also be avoided by establishing a position of cost leadership, that is, by becoming the low-cost producer/provider and, thus, being able to charge low prices that emphasize cost efficiencies. In this strategy, competitors cannot compete on price and must differentiate their products/services from the cost leader.
In today’s business environment, maintaining a competitive advantage by avoiding competition can be difficult. Within a short time, competitors are generally able to duplicate the factors that originally provided the competitive advantage. For many companies, the future key to success may be to confront competition by identifying and exploiting temporary opportunities for advantage. In a confrontation strategy, an organization tries to differentiate its products/services by introducing new features or tries to develop a price leadership position by dropping prices even though competitors will rapidly bring out equivalent products and match price changes.
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