COST LEADERSHIP ch01

1. Identify and explain the two types of competitive advantage.
 COST LEADERSHIP
It is a competitive strategy in which a firm manufacture or provide
products or services at a lower price. To deploy this strategy, a company
needs to produce goods with acceptable quality and specific to set of
customers with price that is much lower than other companies producing
the same product.
 PRODUCT DIFFERENTIATION
This is what makes your product or services different or stand out among
others. It’s goal is to create a competitive and to make the firms product
or services superior in the market.
2. Identify three or four well-known firms that succeed through cost leadership.
 JOLLIBEE
- Cost Leadership Strategy is the main generic strategy that JOLLIBEE FOODS
CORPORATION uses in various consumer markets.
How JOLLIBEE FOOD CORPORATION uses Cost Leadership Strategy
- To preserve the market leadership position through efficient value chain

management.
- Expand the market share by targeting the middle class, which makes the
largest portion of overall consumer market mix in most of the countries.
- Focuses on affordability and easy accessibility of its produce across the globe,
which leads toward high brand awareness and high sales growth and
provides a strong competitive advantage basis.
- Frequently offers discount and coupons to achieve sales target and handle
the competitive pressure by its closest rival
 MCDONALD’S
- McDonald’s strategy of cost leadership enables the company to sustain its
market leadership.
How McDonald’s uses Cost Leadership Strategy
- Optimized the processes of cooking food, making them simple and easy to
learn by all employees, reducing the learning curve as much as possible.
- The company has a division of labor that allows them to recruit and train
freshers as opposed to hiring already trained cooks, which allows them to
pay low wages.
- Own facilities that produce the ingredient mixtures of their products, further
minimizing its cost.
 AMAZON
- Amazon uses advanced computing and networking technologies for
maximum operational efficiency, which translates to minimized cost.
How Amazon Inc. uses Cost Leadership Strategy
- Amazon uses market development as its current primary intensive growth

strategy. Entry and growth in new markets is the main objective in this
intensive strategy. Amazon.com Inc. adds new countries where it offers its
services.
- Market penetration is a secondary intensive growth strategy in Amazon’s
online retail business. The objective of this intensive strategy is to generate
more revenues from the markets where the company currently operates.
Amazon.com grows with increasing consumerism.
- Amazon.com Inc. applies product development as a supporting intensive
strategy for business growth. Developing and offering new products to gain
higher revenues is the goal of this intensive growth strategy. Amazon grows
partly by developing new products over time.
- Diversification is the least significant among Amazon’s intensive growth
strategies. Growth based on new business is the objective in applying this
intensive strategy.
 CEBU PACIFIC AIRLINE

- It has been known as the low-cost carrier in the Philippines. They want all
their passengers to have an attainable low-cost but high quality services.
How Cebu Pacific Airline uses Cost Leadership Strategy
- Cebu pointed to high jet fuel prices when it reported overall 28.9% profit
dip in the first 6 months of 2012, even while it's revenues grew 17.9%.
The airline already bought up to 1/3 of the fuel it expects it will need for the
year, explained Cebu Pacific's strategy chief.
- By continuing their strategy of "unbundled fares" and cutting out frills, like
inflight food service, the low-cost carrier (LCC) is able to offer tickets at a
lower price and appeal to the price-sensitive Philippine market.
3. Identify three or four well-known firms that succeed through product differentiation.
 APPLE
- Apple has succeeded in creating demand for its products, giving the company
power over prices through product differentiation, innovative advertising,
ensured brand loyalty, and hype around the launch of new products.
How Apple uses Product Differentiation
- Apple sells its products and resells third-party products in most of its major
markets directly to consumers and SMBs through its retail and online stores
and its direct sales force.
- Employs a variety of indirect distribution channels, such as third-party
cellular network carriers, wholesalers, retailers, and value-added resellers.
- Apple uses a retail strategy called “minimum advertised price” (or MAP).
Minimum advertised pricing policies prohibit resellers or dealers from
advertising a manufacturer’s products below a certain minimum price. MAP
is usually enforced through marketing subsidies offered by a manufacturer to
its resellers.
- Apple maintains the popularity of its high-priced products by only offering
retailers such as Wal-Mart or Best Buy a marginal wholesale discount.
 TIFFANY & CO
- Tiffany & Co aims to differentiate its products with stunning, unique, and
hand-crafted designs that undoubtedly stand out from the crowd.
How Tiffany & Co uses Product Differentiation
- One of the essential attributes of Tiffany & Company is well- known blue
color of boxes, which became a trademark logo of the company.
- The company focuses on providing consumers excellent customer service
(Knowledgeable employees) in the form of full lifetime warranty, Tiffany
Diamond Certificate, engraving and lifetime cleaning.
- Tiffany & Co. built strong brand image which is very famous all over the
world. It provides customers high quality products and service.
 EMIRATES AIRLINE
- Based in Dubai, Emirates is the state-owned airline and flag carrier of the
United Arab Emirates. The company operates about 3,600 flights per
week to more than 150 cities in 80 countries.
How Emirates Airlines uses Product Differentiation
- The company provides exceptional service and commodities to their

passengers, taking great care of them throughout their whole flight.
- An important part of Emirates’ differentiation strategy is the fact that
they invest a lot of money in the latest technologies available on the
market.
- Emirates allow passengers to take mobile phones at the time of travelling
by which more number of consumers are getting attracted.
4. Explain the process of identifying a sustainable competitive advantage of a firm.
 Understand the market and its segments. Look for those niches that aren’t well
serviced by competitors and can be profitably targeted and sold to.
 Develop an understanding of what customers really want and establish a value
proposition that grabs their attention.
 Work out the key things that you need to do really well to support and deliver
the value proposition.
 Understand what your strengths and core competencies are and how you can
use these in innovative ways to provide value to your chosen market.
 Design your business model to support and deliver the value proposition .
5. What is the meaning of “getting stuck in the middle” in the context of competitive
strategy and how does the situation arise?
 Michael Porter of Harvard Business School originally discussed the problem of

“stuck in the middle.” He said that the profitability of a firm depends not only on
the typical rates of return in an industry. It depends more importantly on the
firm’s position and competitive advantage in that industry. And he argued that
competitive advantage derives from one of two strategies: cost leadership or
differentiation of products or services.
 It is the result of not having the lowest costs, not being really differentiated in
the minds of consumers, or not successfully targeting a market segment results
in a weak profitability and market picture.

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1. Identify and explain the two types of competitive advantage.

How JOLLIBEE FOOD CORPORATION uses Cost Leadership Strategy

- To preserve the market leadership position through efficient value chain

How Amazon Inc. uses Cost Leadership Strategy

- Amazon uses market development as its current primary intensive growth

 CEBU PACIFIC AIRLINE

How Apple uses Product Differentiation

How Emirates Airlines uses Product Differentiation

- The company provides exceptional service and commodities to their

4. Explain the process of identifying a sustainable competitive advantage of a firm.

 Michael Porter of Harvard Business School originally discussed the problem of

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