Business organizations use differentiation strategy in a bid to convince customers that they sell unique products for the customers to purchase them. The success of the strategy is seen when customers develop loyalty to products sold in particular business organizations. Although the foundation of differentiation is not as clear as cost leadership foundation, product, or service qualities that attract customers to justify how differentiation is achieved. Therefore, companies that strive to apply this strategy should focus on innovation, improving the quality of their products, and responding to the needs of customers in a good time. Innovation is popular among companies that apply differentiation strategy. However, they must be patient to achieve success because some innovations, such as the development of new products, sometimes fail.
Although differentiation is beneficial to companies, it is nevertheless associated with certain challenges. Its most significant challenge is that after some time, consumers might stop valuing qualities that they initially valued in a product. Thus they stop purchasing the product. For instance, the PC industry was characterized by direct sales representatives, but they disappeared after some time. Most companies that specialized in the products did not see the need to keep sales representatives since customers could order the products online. Sometimes differentiation records impressive performance, which earns companies huge profits. However, such cases are not common. Finally, differentiation strategy encourages the entry of counterfeit products into the market as different companies compete for customers (Hoskisson & Michael, 2008).
The low-cost strategy focuses on selling products at lower costs. For a company to effectively use a low-cost strategy, it should use resources that enhance efficiency. The low-cost strategy makes it possible for companies to sell their products at lower prices, which creates a competitive advantage. This can be used either to reduce prices to gain market share or to maintain them at a certain level to reap more profits from sales. The basic principle is that price and cost are independent options, and the strategy mainly focuses on cost (Jones, 2010).
Although the low-cost strategy is closely related to cost leadership strategy, it does not strive to offer the lowest prices in the entire market. Instead, it aims at providing the lowest prices for specific markets. For example, a company that sells particular types of clothes can offer the lowest prices in that specific niche, but this may not apply to the whole market. The low-cost strategy allows a company to compete with its rivals in terms of market prices. It might involve complex business operations such as exporting products to other countries to gain competitive advantage or limiting benefits that employees should get.
How Chain Stores Operated by Women can Employ the Strategies
A chain store that specializes in clothes for women can use differentiation to improve its business performance. The first way through which the store can use differentiation in its business is by convincing customers that it sells the most durable clothes. Any customer who goes shopping are attracted to products that would last long rather than products whose lifespan is very short. As a result, women would prefer clothes sold by the chain store and purchase them.
The second way through which the chain store can use differentiation to attract more customers is by convincing them that it sells stylish clothes that cannot be found in other business organizations. Most women value stylish clothes, and this would be a unique quality. As a result, they would develop an interest and eventually purchase the clothes. Also, the store can use differentiation to convince its customers that it would handle any complaints promptly since customers prefer business organizations that address their concerns in good time.
Apart from differentiation, the chain store can also use a low-cost strategy to improve its performance. Through this strategy, it would sell clothes to its customers at the lowest prices, when compared with its competitors. This would enable it to gain a competitive advantage. Customers would purchase products from companies that offer lower prices. This would eventually lead to increased profits and a large number of customers.
Organizational Structure under Differentiation and Low-Cost Strategies
The structure of the organization would be different under differentiation and low-cost strategies. Since differentiation focuses on showing the unique qualities of a product, the structure of the chain store under this strategy would focus on producing clothes that satisfy the needs of customers. Under the low-cost strategy, the structure of the company would focus on creating an advantage for the customers to attract and retain them.
Organizational Culture under Differentiation and Low-Cost Strategies
Under differentiation strategy, the culture of the organization would ensure that employees identify the unique qualities of their products to attract customers. The organizational culture would, therefore, focus on convincing customers that the store offers unique clothes. Under the low-cost strategy, the organizational culture would focus on showing customers the importance of comparing prices and purchasing their products from business organizations that offer lower prices.
Hoskisson, R., & Michael, A. (2008). Competing for Advantage. New York: Cengage Learning.
Jones, G. (2010). Organizational theory, design, and change. Upper Saddle River, New Jersey: Prentice Hall.