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Business-level strategy of differentiation offer some protection against competitive forces in a company’s industry

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Question: How can a business-level strategy of (a) low cost and (b) differentiation offer some protection against competitive forces in a company's industry?

ANSWER:
When a firm is selling the products or services at a low-cost level compared to the competitors, it easily gains the attention of the desired and potential customers in the actual marketplace. The low-cost sales policy can help in having a higher level of sales and a scope of profit maximisation. The low-cost strategy is responsible for stimulating the market demand and achieving a high amount of market share. It also helps the customers who are testing a certain product or service of a company for the very first time (Danso et al., 2019, p. 886(3)). When two companies are selling the same product and one company is having a lower price than another, the competition gets stronger for the company that has acquired the low-cost policy. Market penetration also becomes easier when a company acquires a low-cost pricing strategy. For getting acquire the low-cost strategy, the company has to sell the items at the lowest possible price and the profit amount is also included in that. It is powerful as it puts the company in the best place compared to any of the competitors. As per the concept of Porter's generic strategy, following the low-cost policy enables the production of a larger volume of products. Several companies like Walmarthas applied that (Kumar, Lahiri and Dogan, 2018, p. 147(2)).

Differentiation strategy means providing the customers with a unique experience that is different and distinguishable from all of the competitors. If a brand is successful in providing the customer's different products, the customer value gets increased with that. A strong differentiator helps the company to gain more competitive advantage and stand in a unique position in the market, where the competition level is low. The potential buyers of a brand understand the uniqueness of the product or services and it encourages the company to build up brand innovation and brand presentation (Olson et al, 2018, p. 63(3)). The key advantage is that the company can easily achieve consumer loyalty as they are unable to find any perceived substitute for the product or service. The business competes with other types of companies in the same industry in a different way by proposing a new set of products and services to the customers. Though it requires time, effort and an increased amount of costs, the perception in the competition changes completely with this differentiation strategy (Hole, Pawar and Bhaskar, 2018, p. 182(2)). When the customers face that they are having different products than other companies and the market gap is fulfilled by that, they become more inclined to the brand. The unique qualities help in protecting the company from competitive advantage.

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