Firms can increase profits by either lowering the cost of production or increasi
ID: 2806647 • Letter: F
Question
Firms can increase profits by either lowering the cost of production or increasing the value of their product (and charging a higher price). In order to do the latter, firms must differentiate their product in some way so that consumers value it more than the products made by competitors and are therefore willing to pay a premium price for it. (a) Name an international firm that follows the differentiation strategy at the business-level. Explain how it does this. (b) Name one that follows the low-cost leadership strategy. Explain how it does this. (c) Which of these strategies will work best for a firm that is selling furniture in the global market? Explain your answer.
Explanation / Answer
Some of the international firms that follow differentiation strategy are T mobile,oscar health insurance,Airstream,Lush.
Why they’re brilliant:
How they’re doing it:
International firms that follow low cost leadership strategy are walmart,Mcdonalds,Southwest Airlines.
Wal-Mart Stores Inc. has been successful using its strategy of everyday low prices to attract customers. The idea of everyday low prices is to offer products at a cheaper rate than competitors on a consistent basis, rather than relying on sales. Wal-Mart is able to achieve this due to its large scale and efficient supply chain. They source products from cheap domestic suppliers and from low-wage foreign markets. This allows the company to sell their items at low prices and to profit off thin margins at a high volume.
Low cost leadership strategy works best for a global seller in the furniture business.The best example is Ikea.
The Swedish furniture retailer Ikea revolutionized the furniture industry by offering cheap but stylish furniture. Ikea is able to keep its prices low by sourcing its products in low-wage countries and by offering a very basic level of service. Ikea does not assemble or deliver furniture; customers must collect the furniture in the warehouse and assemble at home themselves. While this is less convenient than traditional retailers, it allows Ikea to offer lower prices that attract customers.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.