Low cost strategy – It is a strategy to lower your cost of your product compare to your competitor. In it profit margin is very low. It is a type of strategy.
The three activities or capabilities for a firm who should possess to support low-cost strategy are as follows: –
Profit margin: – Under low-cost leadership strategy a firm should know that profit margin in this strategy is very low.
Because in this business should decrease the price of product lower than its competitor.
Another unit: – If someone should apply low cost leadership strategy for its product than he/she must earn more profit from it’s another business unit for makeup low profit margin.
Risk taker: – It is come under risk and all business come under risk but it is also a risky game because if you come under first position for lower your cost of product than it’s good but if you come under second or third than there is no use of this strategy because all the attention goes to first position who’s product cost is lower. That’s why it is risky in this competitive world.
For firm all these capabilities needed to use low cost leadership strategy.
Differentiation based strategy: – It is strategy based on product differentiation compare to your competitor. You have unique feature in your product.
For differentiation based strategy: –
Innovative: – A firm who should use differentiation based strategy have innovative skill. On basis of your innovation you can make different product compare to your competitor.
Segment: -Under this a firm target small segment for its product.
High Price: – High price is the major point in this strategy because in this, firm target small segment and work in branding.
It is for those customers who prefer brand.
High and low price of product is the major difference in low cost leadership strategy and differentiation based strategy.
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