Changing from a Cost Leadership Strategy Into Differentiation

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Competitive Advantage > Best Practices > Changing from a Cost Leadership Strategy Into Differentiation

Changing from a Cost Leadership Strategy Into Differentiation
Nguyen Anh Tuan, MBA, Management Consultant, Viet Nam, Member
I'm wondering how enterprises which have a cost leadership strategy turn into a differentiation strategy. Please advise.
 

 
Re: Changing from a Cost Leadership Strategy Into Differentiation
Ching Yang, Teacher, United Kingdom, Member
Differentiation means doing things differently.
There is a common misunderstanding that differentiation means a different type of product or service. When a company does things differently, say like Toyota's just-in-time management. This helps Toyota manage its inventory and store cars more effectively than its competitors (basically when you compare a Toyota show room with it's competitors you will see a significant difference in the stock level and the resulting space used to store these cars).
So, in this case Toyota management of inventory is different from it's competitors.
But this change was brought about by Toyota in order to keep it's costs low - hence, why Toyota had to do "something" differently to achieve cost leadership. Another example is Walmart's SCM.
 

 
Chaging from a Cost Leadership Strategy Into Differentiation
Nguyen Anh Tuan, MBA, Management Consultant, Viet Nam, Member
Thanks. Very good examples for a combined differentiation and cost leadership strategy from Toyota and Walmart. Do you have any idea how state-owned enterprises with low cost strategy might change into or to apply differentiation strategy? To be different is costly, and needs investment...
 

 
Short Term versus Long Term
Vishal Acharya, Consultant, India, Member
Cost leadership may be achievable in a relatively short term and be better than competitors in many cases.
However differentiation in terms of design, branding, product, process, features etc may be far more difficult to emulate for most competitors.
Thus even a company with a cost leadership strategy should continuously strive for differentiation if they want a sustainable competitive advantage.
 

 
How Turn Into a Differentation Strategy?. Delivering a Different AND BETTER VALUE Than Competition
Javier Elenes, Business Consultant, Mexico, Member
@Nguyen Anh Tuan: Any enterprise have two alternatives to be competitive:
1. Give the SAME VALUE at a LOWER PRICE. You need a Cost Leadership Strategy, in which you provide the same value package with less use (abuse) of key resources, time and money.
2. Give a DIFFERENT and BETTER VALUE for the SAME PRICE. You need a Differentiation Strategy, in which you provide better value (as perceived by the customer) than the competitor.
If your QUALITY and SERVICE (perceived by the Customer) is 75%, and the competitor has the same levels, your Q Index is 1 (75 / 75 = 1) and your S index is 1 (75 / 75 = 1)... This means you're not different
Now, trying to answer your question HOW TO TURN INTO A DIFFERENTATION STRATEGY? You need to be different and better in quality and service than the competition. You need to give a differntial value.
In our example, let's say you increase your quality to 90% and your service too and the competitor remains at 75%). Your Q index is 1.20, and your S index is 1.20. This means you are now different and 20% better than your competitor in value delivery to your customer.
So in brief the answer to your question is: provide a differential and better value than than the competition to the customers.
 

     
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