cost leader, cost-leader strategy, differentiation, differentiation strategy, focus, focus strategy, Gregory Dean, Marketing, Marketing Strategy, Marketography, target marketing
All too often, organizations struggle to choose a marketing strategy that best fits their overall goals and objectives. Sometimes the strategy for a given product or service will be in complete contrast to other marketing strategies within an organization. It is perfectly acceptible to use different strategies–across the product portfolio–to help springboard a particular product into the spotlight. Remember, speed to market is crutial. The cost-leader strategy, differentiation strategy, and focus strategy each offer unique advantages.
The Cost-Leader Strategy is the strategy a firm follows to become a leader in market share. Basically the strategy focuses providing the product to the market at the lowest cost. Every action the firm takes is designed to lower the cost of delivering the product to the consumer ensuring the firm maintains the high volume turnover require in this strategy. As a result this strategy also requires the firm to constantly monitor competitive challenges and quickly responding to these challenges by anticipating them and using its cost advantage to dominate its competitors. New technologies and innovations are quickly adopted to lower production costs and increase its advantage in the marketplace.
This aggressive approach to remaining the market leader requires the firm to constantly expand the total market by seeking new users, new uses for the product and encouraging current users to use more of the product. All of these focuses will serve to increase quantity demanded resulting in still lower costs through economies of scale allow the firm to reinforce its dominance in the industry. Wal-Mart is the classic example of this strategy in action.
The Differentiation Strategy is based on exploiting identified weakness in the position of the cost-leader or other firms in the marketplace. These might be consumer dissatisfaction with the choices available, customer services or quality of the product offered by the Cost-Leader. The firm that is following the Differentiation Strategy than develops an aggressive strategy designed to exploit this weakness and gain market share at the cost of either the Cost-Leader or other weaker firms. Target is an excellent example of this strategy countering with smaller, friendlier stores easier for the customer to navigate when in a hurry.
The Focus Strategy is a strategy based on avoiding competition with the major firms in the industry by focusing on serving niche markets too small for the large firms to exploit economically. Usually these are specialty markets that are too dispersed or fragmented for a large firm to serve profitably. Often they are isolated geographically or require a special knowledge of products and market demographics. The firm then focuses on making itself master of this niche but building a value chain based on its unique needs. The Gap succeeds with improved quality and selection in the clothing field it specializes in.
Choose the marketing strategy that will bring the most success to your organization. Considering there is only one cost-leader in each industry, most companies choose a differentiation strategy. This means, of course, that you will be going toe-to-toe with the competitor with the lowest price. In this scenario, do not compete on price. Prove why your products and services are better–and enjoy the success.
Great post. With the emergence with a lot of new C2C online services such as TaskRabbit, etc, it seems that the focus strategy on niche markets is a common trend.. but how are these companies going to face market development issues? In the case of TaskRabbit, expansion to new geographical areas? Seems to me that by expanding they’re increasing the possibility of legal issues and increased competition..
Gregory Dean said:
Smart marketers are constantly trying to find the legal boundaries. To your point, it all comes down to a risk vs. reward decision. Thanks for the comments.