Explain how the Internet can help a company to achieve a competitive advantage in the marketplace through (1) cost leadership and (2) differentiation.

Explain how the Internet can help a company to achieve a competitive advantage in the marketplace through (1) cost leadership and (2) differentiation.

Cost Leadership and Differentiation Advantage

Cost leadership is a method of strategically positioning a firm to achieve a competitive edge by minimizing the cost of service delivery and producing products in its industry. Managers achieve the cost leadership strategy by ensuring their firms’ average cost of manufacturing is lower compared to other industry players (Abdel Rahman et al., 2022). The authors suggest that leveraging cost leadership allows the firm to pursue wider profit prospects and capture a market share of the bargain (Abdel Rahman et al., 2022). On the other hand, firms may simultaneously position themselves to achieve a differentiation advantage by augmenting the quality of their products and services. Adopting both approaches simultaneously is the surest way for the firm to achieve competitively lucrative advantages.

Firms can achieve cost leadership by focusing on the premise of functional similarity instead of delivering high-quality products. Based on functional similarity, firms need to develop products and services that closely replicate their competitors (Abdel Rahman et al., 2022). By replicating competitor offerings, firms achieve the role of a cost-effective standard supplier, thus driving down their cost structure compared to their rivals. However, to achieve a differentiation advantage, the firm must attain additional costs in different activities, such as raising research expenses to augment the quality of product and services, increasing production constraints to guarantee high-quality switching capabilities, offering design that elevates quality and effecting detailed inspection (Abdel Rahman et al., 2022). Therefore, in pursuing cost leadership, the company is positioned as a standard supplier, whereas in pursuing differentiation advantage, the company incurs additional costs.

Moreover, both aims enhance the firm’s competitive edge by positioning it to address barriers to entry effectively, increasing the threat from substitute products and buyers while effectively neutralizing the competitive dynamics among the firm’s industry competitors. Firms seeking to achieve cost leadership advantage enjoy a wider marketplace capture, which provides the impetus to augment its volume and subsequently generate higher margin-based profits. Firms implementing a differentiation approach augment vis-à-vis stable pricing as their prices exceed the viable competitor’s value offerings within the market. This is because the firm’s difference is based on the quality, which customers might consider valuable and therefore willing to pay, thus rendering a relatively higher starting point compared to rivals’ competing offerings (Al-Shammari & Jensen, 2020). Since cost leadership provides the ability to offer standard services and products at relatively convenient cost-right position, customers perceive this as higher value as opposed to quality because the company incurs low prices.

In conclusion, a firm pursuing cost leadership is positioned as a standard supplier when replicating competitor services and products. On the contrary, when seeking to achieve a differentiation advantage, the company incurs additional costs on various activities. For implementing a cost leadership strategy, clients leverage the opportunity to obtain services and products at lower rates compared to other industry players as the firm provides quality at the right price. In contrast, a company implementing a differentiation strategy charges relatively higher rates within the market as customers perceive their services and products to provide additional quality.

References

Abdel Rahman, W., Herrmann, A., & Dreiling, A. (2022). Two sides of the coin: Managing a tension between cost leadership and product innovation. Journal of Business Research, 144, 272-287. https://doi.org/10.1016/j.jbusres.2022.01.054

Al-Shammari, H. A., & Jensen, M. L. (2019). The effect of generic business strategies on organization performance in Saudi Arabia. International journal of business administration, 11(2), 38-54. http://dx.doi.org/10.5430/ijba.v11n2p38