I.

Introduction

There is a plethora of different strategies that businesses can apply in order to maximize their

priorities. However, businesses must align the principles of their chosen strategies with their

establishment’s core values and objectives so as to achieve successful results afterward. This

paper aims to discuss the theories of cost leadership and differentiation elaborated with

respective supporters and detractors to pinpoint which scheme is the most suitable along with

exemplary local businesses analysis throughout the analysis. The scope of this essay shall be

belong to the range of all academic resources presented at the last part of the paper

II. Analysis on differentiation and cost leadership strategies

a. Cost leadership strategy definition and analysis

Cost leadership can be defined as a strategy with the cost of production reduction and low

price settings for products and services with the aim to outshine competitors and earn market

penetration, which demands such different vigorous cost minimization tactics as effective

usage of the scale of production, efficient purchasing strategy, up-to-date technology, and

manufacturing qualified products and services. (Sumer & Bayraktar, 2012).

The most significant benefit when leading the cost of the market is the high return on

investment as well as impressive profit and market share (Alice B et al, 2018). For micro

business, one of the top priorities is to gain profit which can be accomplished with the cost

leadership strategy by cutting down on production costs. Large businesses, on the other hand,

wishes to take up as much space in the market as possible. In other words, their ultimate goal

is to become the top-of-mind brand and accumulate the biggest penetration in the field,

compared to their closest competitors. One of the salient examples can be McDonald’s

branch in Australia which implemented a cost leadership strategy allowing to maintain the
production cost at a low level with limited recruitment in managers position and aim to hire

fresh staff with an intense training program. The strategy helped enhance the business

product quality and hence, constitute a competitive advantage to their competitors and

customers. As a result, the generated profit of the renowned corporation amounted to 40.5

million USD, which was doubled compared to its rival Starbucks in the F&B industry in

Australia. (Lawrence, 2017)

The cost leadership strategy can also serve as a savior during recession times. In downtimes,

businesses often endure great losses and suffering due to economic interruptions. Paused

assembly lines, interrupted supply chain and delays in imports and exports make it almost

impossible for companies to maintain a positive outcome. Products and services are not

enjoyed by the market since demand decreases substantially, while suppliers tend to increase

the price of raw materials in fear of vulnerability and shortage of liquidity. The scheme of

cost leadership assists businesses in the sense that once they have owned a large amount of

market share, they will be first in the market to sell products when demand rises. The theory

framework implies that corporations need to reduce production costs by cutting down on

employees and organizational structure which is also what business often implements in

times of crisis. (Victorio Nahuway et al, 2018). During the pandemic, the airline industry is

one of the most suffering industries in Australia. Confronting the dire situation, many airline

companies made several announcements about the redundancy on employees. Qantas cut

down more than 6000 employees from the corporations due to financial difficulties including

many positions such as pilots, office roles, cabin crew, etc. (ABC News, 2020)

Significant benefits notwithstanding, the cost leadership is flawed in the aspect of financial

cuts, leading to customer and employee dissatisfaction. The core values of the theory
implores that cost of production needs to be minimized at the fullest extent which also means

the reduction of customer service after making purchases. Nowadays, customer’s experience

reigns supreme when factoring business awareness and communication, which demands a

coherent and cohesive process from the moment advertisement reaches customer to the point

where consumers are converted into making payment of products and services. The brand

wins in the market when customer are so satisfied with the products and service throughput

purchasing interaction and process that they advocate for the products to their friends and

families. Therefore, the cuts in customer services will become a minus point when competing

with other rivals and new entrants. In the worst-case scenario, it might lead to new customer

switching to other brands and loyal customer losing interests in buying products and services

from the brand. (Zimmerman, 2006)

The second disadvantage can stem from fewer incentives for innovation which impacts

negatively the future growth, prosperity, and progress of the company. It is obvious that

innovation and invention are of the utmost importance in determining the company's status in

the market. Particularly, innovative products that are multifunctional, practical, and

convenient will always be the market leader in that customers will usually seek products that

both meet their standards and demand regardless of the competitive price strategies between

companies. Once the firm can set its products apart from the other rivals, the market will

become a monopoly one way or another. And the prerequisite condition for a qualified

innovation is financial support from the company in every area in order to stimulate ideas in

the most possible way. The cost leadership, in contrast, can not support innovation and

invention in action because of the diminished cost of production in many areas, thus can

provide neither the material for trials and experiments nor the activation process. (Victorio

Nahuway et al, 2018).

 b. Differentiation strategy definition and analysis.

By definition, the differentiation strategy can be illustrated by the concept of creating a

competitive advantage in setting the company’s products and services apart from the other

key players in the field. The strategy can be divided into 2 subordinates: Broad differentiation

and Focused differentiation. The broad differentiation strategy refers to setting a distinct

competition meaningfully in the scope of the entire industry, while the focused differentiation

strategy put focus on the distinctiveness of the products and services the company offers to

the audience. The strategy relies heavily on the R&D department which often draws much of

the corporation’s profit distribution. (Yoan Putra, 2018)

One of the advantages of the differentiation scheme is gaining brand love and loyalty from

customers. Both types of strategy sketch the concept of innovation which is a distinct

competition against the other players in the field. The products and services are greatly

enjoyed by the market with the functions and conveniences it brings to enhance the quality of

life as well as adapt to the customer’s needs and wants. Furthermore, the meaningful message

the firm sets with its differentiation may increase the unwavering loyalty and support from

the customers since it aligns with either moral values or matches the same advocacy

customers are also pursuing. For instance, the Coca-Cola branch in Australia, in line with its

headquarters, embraces Sustainable Development Goals in performing its Social Corporate

Responsibility which helps to reduce the adverse effects of the climate change and global

warming crisis. The renowned company seeks to turn 100% used water into its beverages to

help preserve water in a much more economical way. The message is impactful to

environmentalists and those who are aware of the dire effects of our current planet which

stimulate them to prefer Coca-Cola products. (Coca Cola, 2018a)

The next supporter of the differentiation strategy can be boiled down to clear and concise

marketing efforts. Acknowledging the differentiated products, services, and messages, the

marketing department finds it easier to advertise the campaign to the targeted audience.

Normally, the marketing team will be the one who needs to brainstorm creative yet

distinctive ideas to compete with the other competitor within the industry. Now the tasks are

much easier to handle in the sense that once the messages are conveyed to not only targeted

customers but also the new source of growth such as new users, the impact it creates can be

powerful and impressive. The benefit also assists the marketing team in only focusing on the

centralized task which is to advertise and increase the awareness-to-conversion process as

much as possible. (Yoan Putra et al, 2018)

However, the strategy can be an advantage for big corporations, but a disadvantage for small

and medium companies. Innovation and invention are the core of what it means to be

differentiated. And to come up with new ideas and solutions requires many incentives for

employees to devote their full time and energy to research and experiments in turning their

ideas to life. Large firms are strong and confident in finance and sources in the R&D

department in coming up with new ideas and inventions. Nevertheless, a micro company is

limited not only in financial areas but the personnel, ideas and support from the board of

directors in implementing and motivating employees to spark innovations and inventions

with astounding prizes apart from salaries. (Retnaningtyas and Jennifer, 2018)

The second peril with differentiation strategy is when it becomes too bold, too different, it

narrows targeted consumers, not to mention the affordability of consumers in buying such

distinct products and services. Today’s market in every industry is ever-changing in any

form, shape, or size, as well as its demands and supply. We never see the actual effect until
the product is launched and enjoyed by the market over time. In worst cases, the innovation

becomes too distinct to the extent that it impresses the audience but does not stimulate them

to make a purchase. As a result, the ideas become exhibitive and therefore, hold no business

value since they can not be enjoyed by the market. Consequently, the final effect is

detrimental in the sense that the company loses all its finance in investing in the development

the launching of the products but receives less in return. (Yoan Putra et al, 2018)

c. Autonomy on suitable strategies for businesses

By weighing all the options with every advantage and disadvantage of the two strategies, we

can draw some conclusions regarding our choices for our businesses. Personally, I opine that

the choice in which strategy suits our business the most depends significantly on the types of

our business, the scope, size, and the industry that we are in. More importantly, when

considering any strategy, we need to take our resources into account in order to best execute

our ideas in real-life practices. In addition, we also need to recalibrate our potential and our

principles in the industry in what message we want to convey to the audience and what image

we want to portray in the minds of customers to better position ourselves distinctively from

the other competitors.

III. Conclusion

The paper describes in detail the concepts of both strategies as well as the benefits and

downsides each aspect may bring to all kinds of businesses, which eventually jumps to the

conclusion that we must base on the integral parts of our company in our autonomy towards

which strategy matches the company's core values and principles so that we can thrive and

succeed in the near future.

IV. Reference
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