COST LEADERSHIP STRATEGY

 Aiming to become Lowest Cost Producer

 The firm can compete on the price with every other industries and earn higher unit profits
 Cost reduction provides the focus of the organizations strategy
 Target a broad market
 Competitive advantage is achieved by driving down costs
 A successful cost leadership is achieved by driving down costs.
 A successful cost leadership strategy requires that the firm is the cost leader and is unchallenged
in this position.
 Especially beneficial: where customers are price sensitive.

Focused Cost Leadership Strategy

 A focused cost leadership strategy needs to compete based on price to
target a niche market. An organization following it may not charge the
lowest prices in the industry. Instead, they may charge low prices
relative to other organizations in the market.
 The nature of the narrow target market changes across organizations
that use a focused cost leadership strategy. Sometimes, the target
market is defined by demographics.
 In all other instances, the target market is described using the sales
channel.

FOCUSED COST LEADERSHIP STRATEGY − AN EXAMPLE

Papa Murphy’s sells ‘cook at home’ pizzas. These inexpensive pizzas are
baked at home. So, the law permits Papa Murphy’s to receive food stamps as
payment. This allows Papa Murphy’s to attract customers that might not
otherwise be able to afford a prepared pizza.

Focused Differentiation Strategy

A focused differentiation strategy provides unique features that fulfil the
demands of a narrow segment of market. Some firms using a focused
differentiation strategy use the efforts on a particular sales channel, such as
selling products online only. Others target specific demographic niches.

A differentiation strategy includes providing unique features to attract a

variety of customers. However, the need to satisfy a narrow market demand
means that the desire of uniqueness is taken to the “next level” by firms in a
focused differentiation strategy. Therefore, the unique features of a focused
differentiation strategy are often specialized.

FOCUSED DIFFERENTIATION STRATEGY − AN EXAMPLE

Mercedes-Benz is into cutting-edge technology, styling, and safety

innovations. This appeal has been available for many decades. In 1970, acid-
rocker Janis Joplin recorded a song called “Mercedes Benz” that highlighted
the automaker’s allure. Since then, Mercedes-Benz has used the song in
several television commercials, including during the 2011 Super Bowl.

Advantages of the Focused Strategies

 In the case of focus differentiation, very high prices can be charged. Indeed, these
firms often price their goods far above the general, following a differentiation
strategy.

 Firms often develop exemplary expertise about the goods and services that they
offer in focused strategies. In markets where product knowledge is vital, rivals
and new entrants find it difficult to compete with the firms that follow a focus
strategy.

Disadvantages of the Focused Strategies

 The limited demand available within a niche is problematic. First, the growth
ambitions can get stymied. Once its target market is served well, expansion might
be the only way to grow, and this needs a new set of skills.

 The niche could get diluted or be taken over by larger players. For example, many
gun stores have gone out of business since Walmart and sporting goods stores
have started carrying an impressive array of firearms.
What Is Niche Marketing?
Niche marketing is an advertising strategy that focuses on a unique target market.
Instead of marketing to everyone who could benefit from a product or service, this
strategy focuses exclusively on one group—a niche market—or demographic of
potential customers who would most benefit from the offerings.