Cost leadership strategy: necessary market conditions, requirements for the organization of production and management, advantages, risks. Five Basic Competition Strategies

External competitive advantage (based on quality)

This type of competitive advantage is based on the distinctive qualities of the product, which are of increased value to the buyer - either by reducing the costs associated with the product, or by increasing its effectiveness. The firm, thus, has the opportunity to install on the product more high price than competitors.

External competitive advantage provides the company with increased market power. It can force the market to agree to pay a higher price than a priority competitor that does not have the same distinctive quality. A strategy based on external competitive advantage is a differentiation strategy. In this case, the company must demonstrate its possession of marketing know-how, the ability to identify customer expectations that are not satisfied with any of the existing products, and meet these expectations.

An external competitive advantage strategy can be successful if the price premium that the consumer is willing to pay outweighs the cost of providing additional value.

Internal competitive advantage (cost-based)

Cost-based competitive advantage results from a firm's superiority in price and cost control, and product administration and management. This is especially valuable for the manufacturer, since the cost of goods becomes lower than that of the company's priority competitor.

Internal competitive advantage results from increased productivity, which makes the firm more profitable as well as more resistant to price cuts imposed by the market or competitors. A strategy based on internal competitive advantage is a cost dominance strategy, which is determined primarily by the organizational and technological know-how of the firm. Such a strategy is successful if consumers are offered an acceptable cost and prices are close to the average market. If, in the pursuit of cheaper goods, the firm sacrifices excessive quality, then the price reduction demanded by consumers will not be able to compensate for the low cost.

Assessment of business competitiveness (search for sustainable competitive advantage)

The two types of competitive advantage discussed above have a different nature and origin, often incompatible because they require too different conditions and production traditions. On fig. 1 shows two types of competitive advantage, in relation to which the following questions are relevant:

* Market power: To what extent are buyers willing to pay a higher price than our direct competitor?

* Productivity: What is our cost per unit compared to a direct competitor, higher or lower?

On fig. 1, the maximum acceptable price is plotted along the horizontal axis, and the unit cost of production is plotted along the vertical axis. Both are expressed as a percentage of the corresponding indicators of the priority competitor:

* Performance axis shows advantage or lag trademark compared to a priority competitor in terms of costs. If the brand is located at the top of the axis, then it loses in terms of costs, if it is at the bottom, it has an advantage.

* The market power axis characterizes a brand's position in terms of the highest acceptable price for its buyers compared to that of a priority competitor. The more to the right the brand is located, the stronger it is and the higher the price the company can charge. Conversely, the further to the left a brand is on the axis, the less market power it has and the lower the price must be for consumers to accept the brand.

Figure 1. Competitive advantage analysis

The bisector in fig. 1 separates favorable and unfavorable positions. There are four competitive positions in total:

* A position in the upper left quadrant is a disaster, as the trademark has two disadvantages at once. It lags behind the priority competitor in terms of costs and does not have the market power to cover this gap with a price premium. Sooner or later, such a company will have to liquidate the brand or leave the market.

* The lower right quadrant, on the other hand, is an ideal situation where a brand has a low cost, supported by high performance, and a high acceptable price, due to a strong market position. This situation is rarely observed in practice, as these two positions involve completely different corporate cultures.

* The lower left quadrant includes brands that have a cost advantage but less market power than their direct competitors. In such a situation, the firm targets price-sensitive consumer segments and allocates moderate funds to operational marketing (or outsources operational marketing to a third party, such as a large retail chain).

* The upper right quadrant reflects a situation very often observed in industrial developed countries: the firm has increased costs, but at the same time its market power is large enough to "cover" this disadvantage with a high acceptable price. In this case, the firm seeks to offer more added value and/or higher quality so that its price premium looks reasonable in the eyes of the buyer.

Business competitiveness assessment is carried out in order to enable the firm to find its own position along these two axes and to formulate strategic priorities for each product. To determine the position on the "market power" axis, information obtained from the research of the brand image is used, which allows to assess the perceived value of the brand and the price elasticity of demand. As for the “performance” axis, here you can use the law of accumulation of experience (if applicable) or information from the “market intelligence” service, whose task, among other things, is to monitor competition.

So, after a cursory examination of Porter's basic competitive strategies, I would like to move on to a study of Cost Competitive Advantage Strategies.

Of the three general strategies, cost minimization is the clearest and most obvious, in my opinion. By choosing this strategy, the company sets itself the following goals:

• 1) Growth in sales volume and obtaining excess profits by reducing the share of competitors with a higher price.
• 2) Tightening the entry barrier for potential competitors seeking to enter this business.
• 3) Creation of financial reserves to ensure price stability in the event of an increase in prices for raw materials, materials, components and semi-finished products (price stability).
• 4) The displacement of substitute goods due to the mass character and relative cheapness of manufactured goods with low production costs.
• 5) Creation of the image of a conscientious and reliable partner who cares about the budget of consumers.

Having the advantage of lower costs brings the firm profits above the industry average, even in a highly competitive environment. A low-cost position protects the company from all five competitive forces, because market forces continue to drive down profits until the profits of competitors following the leader in efficiency are wiped out, and because less efficient competitors are the first to suffer from competitive pressure. .

Often this strategy is chosen by companies with a wide scope of activity. The sources of benefits can be varied. This may be efficiency gains through economies of scale, special access rights to the source of raw materials, etc. Such industries must constantly look for new sources of cost advantages and extract the maximum benefit from them. In some industries, cost advantage is the main basis for competitive advantage: in consumer goods, opportunities to compete on other dimensions are very limited. But even where competition focuses on product differentiation, increased competition tends to make cost-effectiveness a precondition for profitability. The clearest examples of companies and industries that have been transformed by the pursuit of cost efficiency can be found in sectors where regulatory competition has skyrocketed—air travel, telecommunications, banking, and power generation.

In order to achieve my goals, I will consider methods that allow:

• - identify the main sources of cost advantage in the industry;
• - assess the position of the firm in the industry in relation to costs, decomposing the firm into certain types activities;
• - use cost and relative cost analysis as a basis for recommending strategies to improve a firm's ability to compete on cost.

Strategic Analysis and selection are one of the steps in the process strategic management a period during which managers study and select a business strategy that would allow their business to maintain or create a sustainable competitive advantage. The starting point of their analysis is the competitive qualities of the company that distinguish it from other reasonable alternatives from the point of view of the consumer. If the business is in a specific product or service area, they must also choose between alternative long-term strategies, especially when the prospect of expanding the company's activities beyond its traditional area is considered. In this chapter, we explore the strategic analysis and selection of single-industry companies, for which we consider two main topics.

1. What strategies are the most effective in terms of sustainable competitive advantage of single-industry companies? Which competitive strategy best positions the business within its industry? For example, Scania is the world's largest truck manufacturer and, together with its main competitor, Volvo, forms the backbone of the Swedish economy. Scania's return on sales is 9.9%, well above that of Mercedes (2.6%) and Volvo (2.5%), and has remained at a high level for the past 60 years. Scania has achieved a sustainable competitive advantage through a strategy of focusing exclusively on trucks. road transport and three geographic markets (Europe, Latin America and Asia), where the company sells special-purpose vehicles assembled from modular components (20,000 components per car - versus 25,000 for Volvo and 40,000 for Mercedes). Scania is an efficient manufacturer of trucks that can quickly adapt to the different needs of customers in specific geographic markets.

2. Should single-industry companies diversify their business in order to create more value and achieve competitive advantage? For example, the managers of Dell and Coca-Cola, after exploring the possibility of diversification, came to the conclusion that further concentration on the former core products and services would be for their companies the best choice. IBM and Pepsi, having studied the same issue, decided in favor of concentric diversification and vertical integration. Why?

Evaluation and selection of strategies for business: in search of a sustainable competitive advantage

Managers evaluate strategies and choose those that they believe will lead to the success of the business, which becomes successful due to certain advantages over competitors. There are two main sources of competitive advantage: cost structure and the ability to differentiate. Disney World Orlando has unique characteristics that set it apart from other similar establishments. Costco is able to offer its customers popular products at the lowest prices because it has low costs that give it an advantage over competitors.

The profitability of a business whose competitive advantage originates from one or both of these sources usually exceeds the industry average. Companies that do not have a cost or differentiation advantage earn profits at or below the industry average. Two well-known studies show that companies with neither of these advantages perform the worst among their peers, and those with both advantages achieve the best profit margins in the industry.

The average returns on assets (ROI) calculated for 2,500 companies belonging to 7 industries are as follows:

Initially, managers were advised to choose strategies that would help achieve a certain type of competitive advantage. Based on the understanding of basic business strategies, experts usually recommended that companies choose between differentiation or cost leadership. And in the event that business participants can clearly define their strategic priorities, their companies, according to the authors of relevant studies, should receive higher profits compared to competitors who do not have this type of advantage.

As shown by the above data, as well as the experience of many companies, highest level profitability is typical for those companies that simultaneously have both advantages over competitors. In other words, companies that have one or more of the qualities that differentiate them from their main competitors, as well as the resources to reduce costs, will be able to consistently outperform rivals in profits. Thus, the task of modern managers is to evaluate and select such strategies based on core competencies and a value chain that would create competitive advantages of both types at the same time. Box 1, “Chief Strategist,” describes how Facebook founder Mark Zuckerberg and COO Sheryl Sandberg are leading a strategy that incorporates elements of cost leadership and differentiation that they believe will ensure viability and long-term success. companies until 2030, when web technologies will become the main condition for doing business.

Assessing Cost Leadership Opportunities

Cost leadership success presupposes that a company is able to sell a product or service at a low price that its competitors cannot achieve, and has this advantage consistently. With the capabilities and resources outlined in Box 2, a company is able to carry out one or more of the processes in a standard value chain (purchase raw materials, turn them into products, market and distribute products, or perform ancillary operations) with less than competitors. costs, or it must achieve a similar benefit by changing the structure of the value chain. Box 8.2 shows examples of cost leadership strategies.

Low cost strategies- strategies of companies that seek to gain long-term competitive advantages by improving the processes of the value chain in such a way as to consistently achieve results at significantly lower costs than competitors. This allows companies to compete primarily on low prices while still doing business.

When exploring the value chain in search of cost leadership, strategic managers assess the degree of sustainability of a possible competitive advantage using comparative analysis of their business with the activities of their main competitors and in terms of the five competitive factors in the company's external environment. Those low-cost processes that are judged to be sustainable and capable of delivering one or more competitive advantage to the company can form the basis competitive strategy. Cost advantages that reduce the likelihood of buying pressure. When major competitors cannot compete with the cost leader's prices, buying pressure forces them to look for ways to exit the business.

A truly sustainable cost advantage can drive competitors into other areas of the business, resulting in reduced price competition. Intense and prolonged price competition can be devastating to all competitors, as seen at times in the air travel industry.

New players are faced with the cost leader's prepared defense, not having enough experience to replicate all of its advantages. A British start-up, EasyJet, entered the European air travel market with strong advertising support and an offer of economical and unpretentious domestic flights that copied the style of the American airline Southwest Airlines.

For some time, analysts feared that this endeavor would not survive price competition with British Airlines, Buzz (KLM's economy arm) and Virgin Express, and that high airport fares and flight delays would quickly bury new company. However, the company held its ground thanks to the advantage of the first step and even consolidated its leadership among European economy class air carriers.

The price advantage should reduce the attractiveness of substitute products. A serious concern for any business is the prospect of losing customers due to the appearance on the market of substitute products that can satisfy the same needs as the company's product. The price advantage allows you to resist this development and compete even with attractive and cheaper products if their quality is inferior to the company's product.

Large profit margins allow low-cost producers to resist price increases from suppliers, which often helps to maintain their long-term loyalty. If a company has a wide margin of profit, it is easier for it to cope with unexpected price increases from suppliers, especially if this is due to reasons beyond their control. A severe drought in California has caused the price of lettuce to quadruple, a major element of restaurant demand. Some restaurant chains have been able to deal with this, while others have been forced to impose a "lettuce tax" on their customers. Naturally, those restaurants that were more successful in dealing with their suppliers in this situation were able to win their loyalty to use in future competitive battles.

Assessing Cost Leadership Opportunities

A. Resources and Capabilities for Cost Leadership

Sustainable access to capital resources and continuous investment
Engineering ability
Careful control of labor and technical operations
Simplification of the processes of production or delivery of goods/services to consumers
Low distribution costs

B. Organizational conditions conducive to sustainable cost leadership

Careful cost control
Frequent detailed reports of inspection results
Continuous improvement of internal processes based on a comparative analysis of competitors' activities
Clear distribution of responsibilities within the organization
Incentive system tied to tough and usually quantitative targets

C. Some Ways to Achieve Competitive Advantage Through Cost Leadership

Source: based on: Michael Porter, On Competition, 1998, Harvard business school Press.

Having identified the possible components of a cost leadership strategy, managers must decide whether the risks inherent in that strategy could hinder the company's sustained success. The main risks to be analyzed are listed below.

Many cost-cutting processes can be easily copied by competitors. Computerization certain functions processing orders from some hazardous waste disposal companies for a short time reduced their costs and helped improve the quality of service. But their rivals quickly adapted to the situation, adding similar capabilities and achieving the same cost effect.

An exclusive cost advantage can be a trap. Companies that focus on low prices and costs to the detriment of differentiation, must be absolutely sure of the sustainability of their advantage. Especially in the trading of commodities or commodities, cost leaders in order to maintain a profit margin advantage over less major competitors, must overcome the price pressure of buyers in favor of a permanent price reduction. Both the leader and his competitors in this struggle can suffer significant losses.

Excessive reduction production costs may adversely affect other competitive advantages, including the basic properties of the product. Intense cost cutting expands profit margins but reduces the ability to invest in innovation, processes and products. Severe cost reductions can also result in savings on materials, processes, or procedures that gave the original product qualities that customers value. Some computerized mail order companies have found that reducing the number of operators and automating this function results in fewer orders, even at consistently low prices.

The cost advantage often decreases over time. Competitors can gradually learn how to match the cost leader. Sales volume in absolute terms often declines; distribution channels and sources of supply become less efficient; consumer awareness is growing. All of these factors reduce the value of the previously achieved cost advantage. Thus, a cost advantage that is not sustainable over time creates risks for the company. After examining the cost structure of the value chain, identifying processes that can create a cost advantage, and considering the risks associated with these processes, managers begin to choose a company strategy. Those who also provide for the possibility of differentiation or optimization of activities using both sources of competitive advantage should also evaluate the sources of differentiation available to the company.

Assessing Differentiation Opportunities

Differentiation refers to the ability of a company to offer consumers something of unique value. A successful differentiation strategy allows a company to offer products or services that have a higher perceived value from the buyer's point of view, with an additional differentiation markup not exceeding the "value premium". In other words, the buyer is sure that his additional costs for the purchase of a product or service are still lower than the value of the purchased product compared to alternative options. Differentiation is the strategy of a company that intends to build a competitive advantage on the "differences" of its products or services from competitors' offerings. These differences should be related to those properties of the product that determine its intended use, but do not directly affect production costs and price. The success of differentiation is determined by the fact that it will be difficult for competitors to repeat, copy or imitate data distinctive features product.

The source of differentiation is usually one or more elements of the value chain that create unique value for consumers. Sources belonging to the French company Perrier mineral waters, Stouffer's gravy and food freezing technologies, iTunes only works with iPods Apple, automatic system American Greeting Card's inventory and Federal Express's customer service system are all examples of sustainable value chain advantages upon which successful differentiation strategies are built. A company can differentiate the value of its products by staying within the existing value chain or by changing its structure in some special way. The sustainability of the achieved differentiation advantage will depend on two conditions: the long-term perception of special value on the part of buyers and the absence of attempts to imitate this value on the part of competitors.

The material in Box 3 demonstrates the resources and capabilities needed to create differentiation strategies and their associated competitive advantage, and shows how value chain processes are involved in creating differentiation advantage.

By examining a company's resources and capabilities in search of a differentiating advantage, strategic managers evaluate its sustainability by benchmarking their business against major competitors and in terms of the five competitive factors in the company's external environment. Those differentiating advantages that are assessed as sustainable from the point of view of the competitive factors operating in this industry can become the basis of a competitive strategy.

Differentiation weakens rivalry. The BMW-Z4, made in South Carolina, does not compete with the Saturn, made in Tennessee. Harvard does not compete with the local technical school. In both cases we are talking about about basic needs - in transport or in education. However, in the examples under consideration, one of the competitors has a clear differentiation in the minds of certain buyers, so he does not need to react to the actions of a competitor.

Buyers are less price sensitive for products that have a differentiating advantage. The Highlands Inn in the Carmel Valley and the Ventana Inn in Big Sur, California charge at least $750 and $1,000 per night for a room with a kitchen, fireplace, bath, and ocean view. There are other hotels in this picturesque area of ​​the California coast, but the occupancy of the most expensive hotels is about 90%. Why? After all, for the same money you can spend several days in a calm atmosphere in another beautiful place at the Pacific Ocean. But in other cases, regular buyers of differentiated products are tolerant of such price increases that consumers of products in the economy price segment would never accept. However, brand buyers remain loyal to them, regardless of price. Harley-Davidson motorcycles continue to rise in price and their fan base continues to grow despite the many other options available at reasonable prices.

It will be difficult for new players to overcome brand loyalty. While many new beers have entered the US market, Budweiser has held its own. Why? Explanation: Brand loyalty is hard to overcome! That's why Anheuser-Buch has been able to extend core brand loyalty to new niches, such as non-alcoholic beer, where new players can be active.

Having assessed the benefits of differentiation, managers should also examine the risks associated with it. Some of the common types of risks will be discussed below. Imitation can reduce the perceived benefits of a brand, making differentiation meaningless. AMC was a pioneer in the creation of the passenger version of the Jeep as a comfortable modification of the cargo vehicle over 40 years ago. Ford created the "Explorer" model, which combined luxury and functionality, in 1990. Ford simply took some of the trappings of a luxury car and put them in a Jeep. The benefits to Ford have been significant. The Explorer became her most popular product in the US. Since then, however, virtually every automaker has been able to offer luxury SUV models, making it difficult for consumers to differentiate between competitors. Ford managers are faced with the need to create new strategy for Explorer, which would combine new ways of brand differentiation with a greater focus on cost reduction in the value chain.

New technologies can nullify previous investments or knowledge. In the 1970s 90% of the world's watch production was concentrated in Switzerland, including technology, infrastructure and human resources. Then the American company Texas Instruments began experiments with digital technologies for the watch industry. The Swiss did not arouse interest (unlike SEIKO and other Japanese companies). In 2010, less than 2% of the global watch industry output was produced in Switzerland.

Assessing Differentiation Opportunities

A. Resources and Capabilities Needed to Achieve Differentiation Advantage

Good marketing ability of the company
Engineering ability required to create a product
Creative talent and creative flair
Good research ability
Corporate reputation for product quality or technology leadership
Long-term experience in the industry or a unique combination of abilities acquired as a result of the occupation different types business
Well established cooperative links with marketing channels
Well-established cooperation with suppliers of the main components necessary for the production of the product

B. Organizational Conditions Conducive to Sustained Differentiation Advantage

Good coordination between research, product development and marketing departments
Methods of evaluation and promotion based on qualitative rather than quantitative criteria
The company's ability to attract highly skilled workers, scientists and other talented people
A tradition of maintaining close relationships with key customers
A number of qualified employees responsible for sales and operations (in particular, marketing and technical issues)

The price gap between differentiated products and lower-cost competing offerings can reach levels where it becomes difficult to maintain brand loyalty. Buyers may sacrifice some attributes, service, or image of differentiated products in order to obtain large savings in the price of the purchased product. The rise in the cost of studying at prestigious colleges is forcing many students to opt for similar but less expensive courses where there is no corresponding image, technical means or well-known professors, communication with which in any case is episodic.

G. G. Dess and G. T. Lumpkin, "Emerging Issues in Strategy Process Research", in Handbook of Strategic Management, M. A. Hitt, R. E. Freeman, and J. S. Harrison (eds) (Oxford: Blackwell, 2001), pp. 3–34; R. B. Robinson and J. A. Pearce, "Planned Patterns of Strategic Behavior and Their Relationship to Business Unit Performance", Strategic Management Journal 9, no. 1 (1988), pp. 43–60.

One of the South African languages ​​belonging to the Bantu group. - Note. per.

Facebook Lures Advertisers at MySpace"s Expense", BusinessWeek, July 9, 2009; "Zuckerberg on Facebook"s Future", BusinessWeek.com, March 6, 2008; and "Facebook"s Sheryl Sandberg", BusinessWeek.com, April 9, 2009.

"EasyJet Expands as Profits Soar", BBC News, November 14, 2006; and "Demand Boost Cuts EasyJet Losses", BBC News, May 9, 2007.

A cost leadership strategy is a set of well-planned measures aimed at minimizing costs that are costs. Reducing the latter implies an increase in profits. This simple arithmetic principle is the basis for making a decision on choosing a strategy. It captivates with its simplicity and beckons with opening prospects. However, not everything is so simple, rosy and profitable.

Information basis for choosing strategies

The choice of strategy in business is the key to the correct development of production for a certain perspective.

However, the choice can be correct, and the chosen strategy can be productive only if such a choice is based not only on intuition and life experience, but also on specially collected information.

The choice of strategy is a selection from the existing variety of scenarios for the development of the organization. It is formed from predictive studies of the development of production, its internal and external environment. Since the conditions for the functioning of any organization change every day, forecasting work should always be carried out. Only in this case, the choice of strategy can be justified and accurate. Otherwise, even the best intentions and the most winning strategy can lead the organization to a dead end.

Activity planning begins with the choice of strategy. It, in turn, performs the functions of streamlining and organizing actions to achieve stability. It is stability that is the foundation that allows you to build a sustainable structure of any organization. The stability of production is its long life and permanent profit. Everything else is the salvation of the drowning man by the forces of the drowning man himself.

There are 4 major blocks of strategies:

• height;
• limited growth;
• reduction;
• liquidation.

The most profitable strategy is usually growth. But it is also the most risky. Less profitable, but not as risky, is a limited growth strategy. Reduction and liquidation is considered to be the strategy of a ship in distress, which in the open ocean of the market has no one to throw a lifeline.

To some extent, this is true. However, life in constantly changing conditions requires flexible actions that will not only save a business ship from disaster, but will also allow, having closed the leak, to catch a fair wind and finally come to a quiet bay of stability. The main salvation lies in the constant combination of three components: forecasting, planning and choosing a strategy.

Cost leadership and ways to achieve it

A strategy based on minimizing costs can be referred to as a reduction strategy. Of all the options, it comes closest to a cost-cutting strategy. Minimization of costs and expenses can also accompany the harvesting strategy, when production is aimed at maximizing profit. Most often, behind this is the prospect of bankruptcy and liquidation.

In rare cases, a zero cost strategy is part of a limited growth strategy. In this case, saving on costs allows you to concentrate funds for the breakthrough and capture of new market niches, the release of new products, the opening of subsidiaries, etc.

Costs in any enterprise are expenses that do not entail a profit. Most often, social expenses, sponsorship, charity, environmental and workplace protection, any personnel costs that are not salary and so on.

Almost everywhere, and especially in Russia, the lion's share of production costs is energy. For this reason, energy saving is always at the forefront of cost reduction measures. Although most often leading cuts in personnel costs and social benefits.

Why are cost reductions necessary? Every business strives to maximize profits. In order to achieve this goal, it is necessary not only to capture market niches, but also to hold them steadily. This will not be difficult with a monopoly position, the weakness of competitors and a steady demand for these products.

However, if there are many competing manufacturers on the market for this product, and the market itself tends to become saturated, there may be a risk of overproduction of the products of this enterprise. There are three ways out of this situation:

1. To increase the range of products, which will increase demand and for some time oust competitors from this market.
2. Reduce the price and constantly keep it at a level lower than that of competitors. The most profitable option is to achieve dumping prices, but this is extremely risky, not everyone can afford it.
3. Reduce production cost. The first and often the only way to achieve this reduction is to cut costs.

Transnational corporations and world leaders in the production of similar products achieve a stable state in the world market through options No. 1 and 3. This is how they keep their world leadership manufacturers of electronics, automobiles, light industry goods, deep processing of products, etc. However, the decisive factor for gaining a foothold in the market is the constant price reduction due to cost reduction.

Cost reduction as a way to gain a foothold in the market through the competitive advantages of increasing the range and reducing prices should include the rejection not only of unaffordable costs, but also of obsolete technologies. IN modern conditions the only way to move to a sustainable growth strategy is to win the technology race.

Consequently, cost minimization is beneficial for the organization only if the released funds are spent on the modernization of production and the renewal of product lines, and not on increasing dividends on shares or bonuses to management.

Pros and Cons of a Cost Leadership Strategy

There are certainly advantages to such a strategy. Otherwise, it would not have been so popular. However, it should always be considered only as a temporary measure. Based on the implementation of this strategy, new structures, technologies, more advanced systems for managing and stimulating labor productivity, etc., should appear.

This strategy is fraught with certain dangers, since immoderate adherence to this choice can lead to a race of economy between internal structures enterprises and competitors. When all reasonable resources for savings are exhausted, the turn of unreasonable savings will inevitably come, that is, through better marketing, distribution networks, technological progress, destruction management systems, loss of motivation by employees for more productive work, etc.

An organization that develops along the path of minimizing costs runs the risk of falling into a personnel trap. Often such a procedure is accompanied by a reduction in personnel, a decrease in salaries and the elimination of the system of additional labor incentives in the form of bonuses, additional holidays etc. This is the most dangerous way.

There are five basic competitive strategies:
1. Cost leadership strategy - attracting customers by minimizing production costs. It provides for a reduction in the total cost of producing a product or service, which attracts a large number of buyers. There are 2 ways to achieve cost advantage:
- do a better job than competitors by effectively operating in the internal value chain and managing the factors that determine the level of costs in the value chain.
- improvement of the company's value chain up to the consolidation of operations or the rejection of high-cost activities in the value chain (modernization, reconstruction, simplification of product development, transfer production capacity closer to the consumer, use of less capital-intensive rational technology, finding ways to eliminate the use of expensive materials and components). Example - the joint actions of various departments can provide economies of scale in production, reduce the time to create new technology and/or achieve full capacity utilization; reducing specifications for purchased materials; introducing fewer distinctive features relative to competition products.
Conditions for a successful cost leadership strategy:
- price competition among sellers is especially strong;
- the manufactured product has standard characteristics that meet the requirements of consumers.
- most buyers use the product in the same way;
- the cost of buyers to switch from one product to another is quite low;
- there are a large number of buyers who have serious power to reduce the price.
Two ways to generate significant additional profit for the cost leader:
- reduce product prices by reducing costs and attract more buyers,
- without changing the price.
Disadvantages of the strategy:
- the strategy is fraught with a protracted price war,
- cost reduction is not always the exclusive property of the company, and competitors can easily repeat them,
- reducing costs, it is necessary to pay attention to other factors: product improvement.

2. Broad differentiation strategy - attracting customers by maximizing the difference between the company's products and similar products of competitors. It becomes attractive when consumer demands and preferences become diversified and can no longer be satisfied with standard products. In order for a differentiation strategy to be successful, a firm must study the needs and behavior of customers, know what customers prefer, what they think about the value of the product and what they are willing to pay for.
Successful differentiation allows a firm to:
- set an increased price for the product/s;
- increase sales volume (because the bulk of consumers are attracted by the distinctive characteristics of the product);
- win customer loyalty to your brand (some customers become very attached to the additional characteristics of the product). An example is the delivery of spare parts around the world in less than 48 hours, in case of violation of the deadlines, delivery is free of charge by Caterpillar.
A differentiation strategy works best in markets where:
1. There are many ways to change products / y, and most buyers recognize these differences as having value,
2.Buyers' needs and/or ways to use the product are different,
3. A small number of competitors take a similar approach to differentiation.
As a rule, differentiation provides a longer-term competitive advantage when it is based on:
- technical perfection;
- quality of products;
- excellent customer service.
Such distinctive features are perceived and valued by customers, and moreover, the skills and experience required to produce these features are difficult to copy and profit from by competitors.
Ways to give the product distinctive consumer properties:
- reducing consumer costs for the use of goods,
- increasing the efficiency of using the product by the consumer,
- giving consumer properties that provide an intangible advantage,
- creation of additional customer value due to competitive opportunities that are not, and cannot be with competitors.
Disadvantages of the strategy:
- there is no guarantee that differentiation will bring competitive advantage,
- it is possible to quickly copy successful distinguishing features.

3. Best Cost Strategy - increase in customer value due to higher quality at prices at the level of competitors and below. By choosing this strategy, the company must reduce costs and, accordingly, prices, while maintaining or improving product quality. It implies a focus on low costs, while providing customers with more than the minimum acceptable quality, service, features and attractiveness of the product. Competitive advantage lies in proximity to the parameters "quality - service - characteristics - attractiveness" and cost superiority over competitors.
Distinctive features of companies that successfully implement the strategy of optimal costs are:
- the ability to develop and implement additional product attributes at a lower cost;
- offer products that are different from competitors' analogues at prices acceptable to the buyer.
The strategy has the greatest appeal in terms of the possibility of competitive maneuvering. It provides an opportunity to create exceptional customer value by balancing low cost and differentiation strategies. Therefore, it allows the firm to leverage the competitive advantage of both one strategy and the other, creating superior purchasing value.
Disadvantages of the strategy:
There is a risk of being between enterprises with the same two strategies,
- cost leaders can force the company out of the segment of price-sensitive buyers,
- those who use broad differentiation pushes the company out of the segment, ullt value quality and custom design.

4. Focused (niche) strategy based on low costs - Orientation of the enterprise to a narrow segment of customers and crowding out competitors due to lower production costs.
5. Focused (niche) strategy based on product differentiation - focusing on a narrow segment of customers and crowding out competitors by offering products that better meet the needs of customers.
Their differences are that they are focused on a narrow part of the market. The target segment or niche can be defined based on geographical uniqueness, special requirements for the use of the product or special characteristics of the product that are attractive only for this segment. In this strategy, you can achieve an advantage if:
1) have > lower costs than competitors,
2) be able to offer consumers something different from competitors.
A cost-focused strategy assumes that the firm is ahead of competitors due to > low production costs.
A focused differentiation strategy depends on a customer segment that requires unique product features and attributes (generally aimed at high-end buyers who want products with first-class features).
Focused strategies are attractive under the following conditions:
1. the segment has good potential for growth;
2. It is quite expensive and difficult for those operating in various segments to meet the requirements of buyers of a specialized niche;
3. the firm does not have enough resources to serve a wider market share;
4. There are many different segments in the industry, which allows the company to choose its niche according to its strengths and abilities.
Flaws:
- there is a possibility that competitors will force them out of the segment,
- the needs and preferences of consumers can be transformed into the needs and preferences of the majority,
- the segment may be attractive, which will lead to a decrease in profits.