I betcha that this term is in the minds of every successful businessman. How do I distinguish my business from competitors? What is needed to separate my brand from others and let the customer know that I am different? How do I determine my pricing and operation policies in order to effectively support the policy? These and many many more questions are being asked on a daily basis by CEO's all over the world. With all the books written on the subject one could wonder which of the three most prominent strategies - low cost, differentiation or focus - is the best. I personally don't think that one or the other is superior in general but it depends on a specific company and objectives that it's trying to achieve. The most important thing is to determine the strategy correctly and then show consistency. This will ensure that both the customers views and company operations are consistent and working towards the same goal.
Cost leadership strategy is a very obvious one where a company cuts all of the expenses to produce and deliver product to the customer and as a result is being able to offer products of cheaper prices. An obvious example of such company is Walmart and if you think that I will shy away and try to be original on this one - you are mighty wrong! Not because I don't want to be original but because I'm cutting my expenses and rather use this extra research time for my presentation so that i could differentiate on that one :) So, back to shamelessly abusing an obvious example: Walmart is focusing on providing customers with cheapest prices for the product and they are doing everything in order to cut costs on internal operations. They are doing it within reason though. For example, even though they are trying to cut on prices they still invest into advertising. However, they only invested 1/3rd or what their competitors did on average in 2005.
An excellent example of differentiation is Mercedes Benz. They have invested significant amount of money into portraying an image of an exceptional car for exceptional people. Mercedes Benz promotes their image as a premium auto maker and they are differentiating themselves from other car makers. They spend significant amount on research and development to make cars safer, more reliable, luxurious and comfortable. At the same time, they make sure that cars have the latest gadgets and invest into design to make their cars look beautiful [if you don't think CL63 AMG is a work of art then u r just a prejudiced against Mercedes, u Mercedes hater!] . Because of this differentiation of course the customer is willing to pay a higher class. In addition to technical/design innovations, Mercedes established their brand to be an indicator of a certain style and even class - another important step toward differentiating the car. (as I have written this I noticed we were only supposed to describe department stores - whoops!)
In terms of focus strategy - and speaking of beautiful - Victoria Secret definitely qualifies. They are focusing on Women's clothing and in particular underwear (not exclusively though) - a very narrow product line. In this market they are differentiating their product from other underwear manufacturing focusing on quality and the image of sexy. They invest into sponsoring and arranging fashion shows, employ gorgeous models to wear their underwear in front of cameras and appealing not just for women to buy them but for men to get their underwear for women. That is an extremely smart idea because a lot of times when it comes to men thinking "sexy" they lose a sense of "stingy" and are willing to dig into their wallets - after all who doesn't want their woman to look like a Victoria Secret model at least once in a while [don't kid yourself - YOU DO! and no offense to women reading this post - personality and connection are extremely important too]
So here you go - I have masterfully described these brands and now it is up to you and leave cool and insightful comments - GO! GO! GO!
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5 comments:
One reason that Wal-Mart does not have to spend much on advertising their products in comparison to other mass retailers, is becasue their prices are low; there is no need to invest the extra money, customers are buying based solely on price, not image.
Haha, another Walmart. Well it's expected since everyone knows how darn cheap they are.
Victoria's Secret is a good pick for focus strategy. Not too many places can pull it off successfully, especially when they're just selling underwear as their primary good.
Hey Alex, great post. I see Walmart is going to be the marjority's choice for cost leadership. For Focus strategy, would Victoria secret still be considered to be using this strategy?? I know in the beginning they were all about the underwear, but now they have clothing and perfume (not that I shop there!!) as you mentioned, so would that still be considered as a focus strategy still? What are your thoughts?
To Marcos
Well I think despite the fact that they are expanding ito perfume and some clothes they are still focusing on producing clothes for women and they build their whole brand around it
Ah hah! I have taken the incentive to come and read this post anyways! Wal-Mart is always a good choice for cost leadership, and if there is one thing you can learn from them, it's to not invest time into unnecessary things, like thinking about other cost leadership examples, very much like you have done for this example =P.
Looking faintly at the Mercedes Benz, they do differentiate their products from other car companies, but then again, every car company does that -- if they didn't they would be selling the same car as another company and not making any sales if they cost more. But nice example anyways. I like how they have two levels of car quality, not economy and luxury, but rather luxury and super-luxury with the Maybach.
On to my favorite part, Victoria's Secret. I couldn't have said it better myself. I like the thinking "sexy" vs. thinking "stingy" bit, very original =D. See, this is how I think about it. Why spend 120 dollars on some expensive lingerie set, when you can buy a magazine and look at real models wearing them? It saves you all the trouble of looking for the right stuff to buy and all that money to buy the darned thing. Success!
--- Karup
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