Cost Homework

Homework 1 – Chapter 1 & 2

1- 41. In order to determine which of the firms on the two lists can be classified as a cost leader or a differentiator, we need to understand the differences in the nature of the cost leadership and differentiation strategy. According to the textbook (chapter 1, page 17), the distinctive aspects of the two competitive strategies are summarized as following

Aspect | Cost Leadership | Differentiation |

Strategic target | Broad cross section of the market | Focused section of the market |

Basis of competitive advantage | Lowest cost in the industry | Unique product or service |

Product line | Limited selection | Wide variety, differentiating features |

Production emphasis | Lowest possible cost with high quality and essential product features | Innovation in differentiating products |

Marketing emphasis | Low price | Premium price and innovative, differentiating features |

None out of the top 10 brands in 2009 tried to compete in the market by offering the lowest product or service cost in the industry. Rather than, these 10 firms have focused on developing valuable brands by spending huge marketing and advertising expenses. As a result, these companies differentiate their products and service proposition in accordance with the value of the brands. Coca-Cola is one typical example of heavy spending on marketing and advertising to compete for market share with its main competitor – Pepsi. Beside these spending, some of the companies on the list also tried to cut the costs during operations. For example, Toyota innovatively applied lean manufacturing process by applying just-in-time strategy to reduce waiting time and maximize the operating efficiency. However, these efforts, once again, are not to be the cost leader in the market, but to be differentiated among the competitors, typically by brands in this situation. Branding is very important not only because it distinguishes one among other companies, but also...