Business-Level Strategy: Cost Leadership & Product Differentiation

Vocabulary flashcards covering key terms and examples related to cost leadership and product differentiation strategies at the business level.

Strategic Management Process

A sequence of analyses and choices—mission, goals, external and internal analysis, strategic choice, implementation—aimed at achieving competitive advantage.

Business-Level Strategy

Actions a firm takes to position itself against rivals in a specific product market; answers the question, “How do we compete?”

Corporate-Level Strategy

Decisions about which industries or markets the firm should enter or exit; addresses “Which businesses should we be in?”

Sustainable Competitive Advantage

Long-term value creation achieved by deliberately choosing a unique set of activities different from rivals, per Michael Porter.

Cost Leadership

A business-level strategy that generates economic value by producing goods or services at lower cost than competitors.

Product Differentiation

A business-level strategy that creates economic value by offering products perceived as unique and worth a premium price.

Stuck in the Middle

A firm that fails to achieve either low-cost leadership or effective differentiation, risking poor performance.

Economies of Scale

Cost advantages occurring when average unit cost falls as production volume increases up to the minimum efficient scale.

Learning Curve Economies

Reductions in unit costs as cumulative output increases and a firm gains experience with a process.

Differential Low-Cost Access to Inputs

Cost advantage derived from privileged access to raw materials or resources due to history, timing, endowment, or exclusive contracts.

Technology Independent of Scale

Proprietary or superior technology that lowers costs regardless of production volume; the advantage belongs to the technology owner.

Policy Choices (Cost Leadership)

Managerial decisions that set low-cost standards or incentives, enabling production of acceptable quality at minimal cost.

IKEA

Global furniture retailer exemplifying cost leadership through suburban megastores, DIY assembly, and worldwide scale.

Hanssem

Korean furniture firm using product differentiation—downtown stores, delivery & installation, targeting newlyweds—to compete with IKEA.

Xiaomi

Chinese smartphone maker employing cost leadership via online sales, minimal advertising, thin margins, and rapid market expansion.

Product Attributes

Tangible characteristics such as features, complexity, timing, or location that differentiate a product.

Product Feature

Altering materials or design to add distinct characteristics (e.g., Arm & Hammer toothpaste).

Product Complexity

Offering multi-functionality or technological sophistication to create uniqueness (e.g., digital cameras vs. single-use film).

Timing (Differentiation)

Launching products at moments that enhance customer perception and value, such as movie releases during holidays.

Location (Differentiation)

Using a preferred physical site to enhance buying experience (e.g., prime-traffic gas stations).

Firm–Customer Relationship

Differentiation basis derived from interactions and bonds with customers, including customization, marketing, and reputation.

Product Customization

Tailoring offerings to individual customer needs (e.g., Dell’s build-to-order computers).

Consumer Marketing

Changing customer perceptions through advertising or branding without altering the product (e.g., Mountain Dew re-imaging).

Product Reputation

Enduring customer trust and esteem built over time (e.g., Harley-Davidson motorcycles).

Firm Linkages

Differentiation created by coordinating competencies within the firm or with external partners.

Linkage Within the Firm

Combining internal functions to add value (e.g., Ford’s manufacturing plus financing services).

Linkage With Others

Aligning products with those of other firms (e.g., Mattel toys in McDonald’s Happy Meals).

Product Mix

The breadth of product lines a firm offers, contributing to differentiation (e.g., Procter & Gamble’s diverse brands).

Distribution Channels

Varied methods for delivering products to target segments (e.g., Coca-Cola vending machines).

Service and Support

Post-purchase assistance that adds value, such as Hyundai’s 10-year warranty.

ROI Positioning Matrix

Framework contrasting high/low market share with high/low price; identifies low-cost, differentiation, and ‘stuck in the middle’ positions.

Low-Cost Leadership Examples

Firms like Wal-Mart, Southwest Airlines, Pacific Cycle achieving advantage primarily through lower prices.

Differentiation Examples

Companies such as Mercedes-Benz, Coca-Cola, Trek Bicycles gaining premium margins via superior perceived quality.

Hemi Engine Reintroduction

Chrysler’s differentiation move combining nostalgic product features, marketing (“That thing got a Hemi?”), and cross-model linkage.

Michael Porter

Harvard strategist who emphasized deliberate activity choices for sustainable competitive advantage.