Page 183 - (DK) The Business Book

WORKING WITH A VISION 181

See also: Gaining an edge 32–39 ■ Leading the market 166–69 ■ Good and bad strategy 184–85 ■ The MABA matrix
192–93 ■ Porter’s five forces 212–15 ■ The value chain 216–17

leadership have to be confident that This strategy is more appropriate in
they can both achieve the number markets where products are not
one position, and also maintain it. price sensitive, and customers’
Several requirements must be met needs are typically underserved. It
to achieve this, including: a low also means being able to satisfy
Once stuck in the middle, cost base (across labor, materials, those needs in ways that are
it usually takes time and facilities); efficient technology; difficult to copy.
and sustained effort to efficient purchasing; well-organized Bose Systems is a company that
extricate the company from and cost-effective distribution; and pursues a differentiation strategy.
this unenviable position. access to capital for any required A privately owned US audio
Michael Porter investment, to keep costs down. electronics company, it consistently
These low-cost principles are reinvests profits to fund innovation.
not exclusive to any one company, Customer-focused research has led
however, and the risk is that they to Bose’s dominant position; their
are easily replicated. Companies noise-canceling headphones and
pursuing a cost-leadership strategy stylish speakers have become
have to build in continuous aspirational items.
to earn a greater margin than improvement in all their processes to The approach to differentiation
competitors; or sell at below industry ensure the company can keep costs will vary according to the products
prices to gain more market share. below those of other competitors. and services, and the nature of the
Some supermarkets, such as German particular industry, but typically
retailer Aldi and UK company Tesco, Differentiation strategy involves additional features and
take the low-price approach to cost A company that pursues a functionality, enhanced durability,
leadership. They achieve this by differentiation strategy has to make and better customer service.
purchasing large volumes from close- markedly different products or Companies that choose to pursue
relationship suppliers, and offer the services from competitors, so they this strategy require certain
customer “deep discounts.” Their have greater appeal to consumers. fundamentals in place, including ❯❯
slogans— Tesco’s “Every little helps”
and Aldi’s “Like brands, only
cheaper”—convey their drive to pass
savings on to the consumer.
Porter suggests that to pursue a
cost-leadership strategy, a company
has to be the leader in terms of cost
in their industry or market, rather
than be among a group of low-cost
producers, because this makes
them vulnerable. With fierce
competition there is always the
chance for other low-cost producers
to reduce prices, and so take market
share. Companies that choose cost

Bose Systems is an audio specialist
that pursues a differentiation strategy.
It distinguishes itself from competitors
through research and development,
which results in innovative technology.