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A useful framework for a firm to obtain competitive advantage over its rivals
1. Cost leadership
- to be the lowest cost producer in an industry.
- compete on price
- earn the highest unit profits
- to achieve cost leadership:
- Seek to set up production facilities for mass production as these will facilitate the economies of scale advantages
- Invest in the latest technology – improved
- quality less labour needed.
- Seek to obtain favourable access to sources of raw materials.
- Look to develop product designs that facilitate automation.
- Minimise overhead costs by exploiting bargaining power
- Concentrate on productivity objectives and
- constantly seek to improve efficiency and economy, e.g., value chain analysis.
- provides something unique that is valuable to buyers
- Differentiation occurs when the differentiated product is able to obtain a price premium in the market, which is above the cost incurred to create the differentiation.
- As a consequence of differentiation being about uniqueness it is not really possible to give an exhaustive list detailing how a firm may differentiate itself.
- To truly differentiate yourself we must understand the product or service offered and the customer to whom you are selling it
- A focus strategy is based on fragmenting the market and focusing on particular market niche.
- The firm will not market its products industry-wide but will concentrate on a particular type of buyer or geographical area.
- Cost focus: This involves selectinga particular niche in the market and focusing on providing products for thatniche. By concentrating on a limited range of products or a small geographical area the costs can be kept low.
- Differentiation focus: Select a particular niche and concentrate on competing in that niche on the basis of differentiation, e.g., luxury goods.