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firms may become so concerned with maintaining low costs that they overlook
needed changes in production or marketing.
The cost-leadership strategy may be more difficult in a dynamic environment
because some of the expenses that firms may seek to minimize are research and

development costs or marketing research costs—expenses the firm may need to incur
to remain competitive.
Focused Low-Cost
A cost-focus strategy is a low-cost, narrowly focused market strategy. Firms
employing this strategy may focus on a particular buyer segment or a particular
geographic segment and must locate a niche market that wants or needs an efficient
product and is willing to forgo extras to pay a lower price for the product. A
company’s costs can be reduced by providing little or no service, providing a low-
cost method of distribution, or producing a no-frills product.
Differentiation
A differentiation strategy involves marketing a unique product to a broad-based
market. Because this type of strategy involves a unique product, price is not the
significant factor. In fact, consumers may be willing to pay a high price for a product
that they perceive as different. The product difference may be based on product
design, method of distribution, or any aspect of the product (other than price) that is
significant to a broad group of consumers. A company choosing this strategy must
develop and maintain a product perceived as different enough from the competitors’
products to warrant the asking price.
Several studies have shown that a differentiation strategy is more likely to
generate higher profits than a cost-leadership strategy, because differentiation creates
stronger entry barriers. However, a cost-leadership strategy is more likely to generate
increases in market share.
Focused Differentiation
A differentiation-focus strategy is the marketing of a differentiated product to a
narrow market, often involving a unique product and a unique market. This strategy
is viable for a company that can convince consumers that its narrow focus allows it to
provide better goods and services than its competitors.
Differentiation does not allow a firm to ignore costs; it makes a firm’s products
less susceptible to cost pressures from competitors because customers see the product
as unique and are willing to pay extra to have the product with the desirable features.
Differentiation can be achieved through real product features or through advertising
that causes the customer to perceive that the product is unique.
Differentiation may lead to customer brand loyalty and result in reduced price
elasticity. Differentiation may also lead to higher profit margins and reduce the need
to be a low-cost producer. Since customers see the product as different from
competing products and they like the product features, customers are willing to pay a
premium for these features. As long as the firm can increase the selling price by more
than the marginal cost of adding the features, the profit margin is increased. Firms
must be able to charge more for their differentiated product than it costs them to
make it distinct, or else they may be better off making generic, undifferentiated
products. Firms must remain sensitive to cost differences. They must carefully

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