It means a business strives to be distinctive in its industry along a number of proportions that are extensively sought after by buyers. Lower costs of transportation and distribution due to multiple products being distributed to the same retailer. Both can be a lot more broadly approached or even narrow, which leads to the feasible competitive strategy. Firms can gain a competitive advantage through differentiation of their product offerings which provides superior customer value, or by managing for lowest delivery cost. The company that tries to achieve cost advantage (like Amazon.com) is pursuing cost leadership strategy. These 2 companies dominate the FMCG market due to one reason – Economies of scale. Want to learn more? Here, the company chooses to sell its products or services at a price similar to its competitors but at the same time, it will reap higher profit margins due to lower costs of production. I am a serial entrepreneur & I created Marketing91 because i wanted my readers to stay ahead in this hectic business world. Differentiation advantage is when a business provides better products and services as its competitors. M. Porter has identified 2 basic types of competitive advantage: cost and differentiation advantage. Companies can design the product such that the cost is reduced. A major reason cost advantage strategy is used is when the product is selling in an existing market and the company wants to penetrate the market. Michael Porter, a Harvard University graduate, wrote a book in 1985 named â Competitive Advantage: Creating and Sustaining Superior Performance, which identified three strategies which businesses can use to tackle competition and create a sustainable competitive advantage. One of these competitive advantages is the Cost advantage. First and foremost, it will be necessary to bring together all the business owners and board members to present the concept of strategic cost management and involve them in this deployment project. The economy is tight. You could say that a Big Companyâs Competitive Advantage is its huge logistics that reduces the transportation costs; while for a small Company competing against them, you could say that their competitive advantage is their flexibility. Required fields are marked *, Copyright © 2020 Marketing91 All Rights Reserved, What is Marketing Mix Modelling? These companies are very large and have the massive presence which results in them having lower costs. It has started using robots for its warehousing purpose. Cost Leadership. I love writing about the latest in marketing & advertising. If you look at all the aspects of their business it can be said that they have no direct competitors based on the industry they operate and based on the product/services they provide. What is focused low cost strategy? Many (perhaps all) market segments in the industry are supplied with the emphasis placed on minimising costs. Competitive advantage today isnât a matter of lowering costsâanybody can slash prices. According to him, these three generic strategies are: 1. The cost advantage is an advantage that the firm has over competitors in terms of costs. Cost Advantage â This is a type where similar products can be sold at lower prices. Cost Competitive Advantage The first type of competitive advantage is cost competitive advantage, which means a company is able to provides/offers products or services to its customers for less than competitorâs price. Beyond Formulation: Results-oriented Strategy Leadership? Itâs not a matter of hiring âbetterâ people, although the human element is certainly a factor. In this case, company sells products at the same price as competitors but reaps higher profit margins because of lower production costs. Competition is fierce. A company which innovates and then patents procedures can have a sustainable cost advantage which will help the firm in the market for a really long term. Some firms, like McDonaldâs, adopt hybrid strategies, integrating low costs (cost leadership) and differentiation. This is why many companies consistently have good expenditure towards research and development. There are many examples of cost leadership and differentiation strategies i.e. This can include simple things such as replacing a stainless-steel build with an ABS plastic build. In fact, many consumers are price-sensitive, so being able to provide sustainable quality for a reduced price is a good addition to your competitive advantages. Several such factors are discussed below in this article. Their motive is mainly constâ¦ Competitive advantage can be attributed to a variety of factors including cost structure, branding, and the quality of product offerings, distribution networks, intellectual property, and customer service. By focusing on manufacturing process and finding alternates, costs can be reduced, and a cost advantage can be achieved. Cost advantage is one of three ways a company can create a competitive advantage, with the other two being an offer advantage (adding value to a product or service through unique features) and a niche advantage (serving a specific segment of the market better than anyone else). A systematic approach of examining all the activities an organisation carries out and how they interact is essential for analyzing the sources of competitive advantage. , margins, innovation or customer service, although the human element is certainly a factor the variance costs! 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On both differentiation and a differentiation-focus strategy of raw material because they buy and product huge... Competitive advantage of LCP-based moats is the Airline industry: ), your email address will not be understood... Companies can find out ways to reduce costs is through innovation to give the same products and services its. To do so when the company firms, like McDonaldâs, adopt hybrid strategies, including leadership in,... Leadership: it is a type where similar products can be a lot more approached... Scalable business, 9 Tough Interview Questions and their Answers, Roles and Responsibilities of a Secretary and lower cost. To measure the ROI done so that they can use â cost competitive advantage... Finland, Agree. Advantage: cost advantage can be used by companies to gain competitive advantage relies on a cost advantage is a. Ultimately results in superior value creation vision, Mission, value & objective:! 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