Essay On Low-cost strategy and Differentiation
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The low-cost strategy can be described as a pricing strategy where a company offers a low price to stimulate demand as well as gain market share. It is important to understand that it is often usually employed where the product has few or even no competitive advantage, and where the economies of scale are achievable, and there is the presence of higher production volumes (Jayaswal, 2009). To use the low-cost strategy, a company should be able to have a thorough understanding of costs and how the company can be able to reduce them. “The company should be willing to standardize all its offering in order to manage the costs, and this often implies that exceptions that are requested by prospective customers that must be limited or even excluded in order to keep the costs down for the consumers” (Jayaswal, 2009).
Differentiation on the other often involves being perceived by the marketplace as effectively having a higher value to the customer or even to the user than the competitors. It is important to note that there are higher pricing levels in the differentiation strategy. In the differentiation strategy, there is a need for the company to understand the customer’s needs as well as preferences.
“The company should also be driven to be able to innovate and continually address those wants and needs by the consumers” (Ryans, 2008). There is further, a need for a company that uses the differentiation strategy to maintain visibility and its position in the market.
An example of the differentiation strategy in work is the Apple company products. The company sells the IPhone at a higher price than the competitors products but it stills dominates the marketplace. Because this phenomenon is that it seems to provide the highest quality, and the most consistent performance in the marketplace (Pearce, 2009). The company has been able to market its product directly to its clientele and ensure that they understand the value that they are getting from the product.
This is an important concept as the company has been able to advance in technology and always keep the consumers waiting for another apple product. The industry associates Apple products with sophisticated engineering, good design and best quality. Therefore, this differentiation strategy has made Apple stand out in the market as a product that is not cheap but which offers quality.
Delta Airlines is known for its low-cost airlines. The company has focused on ensuring that if offers low costs airfares to its consumers. This has been a successful policy that has brought the company millions of consumers. The company has understood that to capture the market, there is a need to provide low-cost airfares to its passengers. The other competing airlines often produce the same services that are identical to that of Delta Airlines (Pearce, 2009).
However, for the company to stand out it has come up with the system of lower costs which has created a competitive advantage as the company has a higher level of profit per sale. By having this advantage, Delta Airlines can be able to do several things such as invest more in marketing, and pay for better positions in airports to be the higher market shareholder. The company has been recently investing heavily in innovation to ensure that it continues to provide low-cost airfares to its consumers.
In conclusion, a company should understand its structure in order to better understand which strategy suits it. This is because there are companies that can thrive well with the differentiation strategy while there are others that cannot and they do well with low cost strategy. Apple for example uses the differentiation strategy whereas the Delta Airlines uses the low cost strategy.
Jayaswal, S., & University of Waterloo. (2009). Product differentiation and operations strategy for price and time sensitive markets. Waterloo, Ont: University of Waterloo.
Pearce, J. A. (2009). Strategy: A view from the top (an executive perspective). Upper Saddle River, N.J: Pearson/Prentice Hall.
Ryans, A. B. (2008). Beating low cost competition: How premium brands can respond to cut-price rivals. Chichester, England: John Wiley & Sons.