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
• Outsourcing
• 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
• Technology
• Fast Delivery
• Custom Products

Extract from Business Studies Stage 6 Syllabus. © 2010 Board of Studies NSW.