Low Cost
Differentiation
Preemptive
Strength
Brand identity
Differentiate from other low cost providers to increase volume
Brand identity commands a premium price, increasing margin
Brand identity becomes identifiable with a specific niche
Build brand identity quickly to reduce the threat of new entrants
Weakness
Lack of diversification
Diversify into many products to promote volume sales
Brand extensions
Diversification is not part of this strategy.
Diversification is key to opening new market opportunities.
Opportunity
Geographic expansion
Increase volume
Increase volume
Increase volume
Increase opportunities
Threat
High substitutability
Inherent in the strategy -- low cost defends against this
Differentiation seeks to neutralize this threat
Product uniqueness defends against this threat
There should not be substitutability; if there is another innovation is needed
Sources: Porter, M. / QuickMBA.com (2007)
Brand Identity
Brand identity is one of the major strengths of Kraft, and its brands are household names within its distribution area. While brand identity is not normally associated with a low cost strategy, in some industries most firms compete on low cost and still must use brand identity to help differentiate themselves. Consider the quick service restaurant industry -- all firms seek to compete on price leadership, but the stronger brands (McDonalds, Subway) use their brand recognition to attract more customers and a higher caliber of franchise owners.
The ability of brand to increase prices paid by customers is constrained by the nature of the industry and the intensity of competition, but brand is still used to generate the volume required...
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