Strategic Role of Operations Management – Cost Leadership, Good/Service Differentiation
A business can improve productivity, efficiency and quality through cost leadership and differentiation in order to achieve long term competitive advantage.
Cost leadership: business aims to have the lowest costs or to be the most price-competitive in their market, generally through:
- Basic products with fewer features, or lower quality
- Small profit-margins, high volume of sales
- Example: Kmart.
Cost leadership strategies include:
- efficient production
- reduce overhead costs
- low cost of goods
- Economies of scale
- Investment in technology
Economies of scale: cost advantages that can be created as a result of an increase in scale of business operations.
Product differentiation: distinguishing products from your competitors. Product differentiation may allow a business to command a higher price and build brand loyalty. A differentiated product can command a higher premium price.
Price Differentiation strategies include:
- High Quality
- Brand image
- Fast Delivery
- Custom Products
Extract from Business Studies Stage 6 Syllabus. © 2010 Board of Studies NSW.