A Guide to B2B Strategies
Cost Leadership is a business strategy that involves a company focusing on achieving the lowest possible cost of production in order to offer its products or services at a lower price than its competitors. This strategy is commonly used in markets for commodities like iron ore, oil, and potash, where prices are largely determined by supply and demand. In order to achieve cost leadership, a company needs to strive for operational efficiencies by reducing costs and increasing productivity. This may involve expanding the size of the company to take advantage of economies of scale and scope, vertically integrating its operations, and setting up production facilities in areas with access to raw materials, transportation, and low-cost labor. By implementing these measures, a company can offer products or services at a lower price than its competitors, while still maintaining profitability.
Walmart Stores Inc. is able to achieve cost leadership due to its large scale, cheap suppliers, and efficient supply chain. This allows the company to sell its items at low prices and to profit off thin margins at a high volume.
McDonald's is able to keep prices low through a standardized production process division of labor that allows it to hire and train inexperienced employees rather than trained cooks. These staff savings allow the company to offer its foods for bargain prices.
Southwest Airlines offers the lowest prices possible by minimizing the time that its planes spend on the tarmac and standardizing the jets and engines it flies.
Cost leaders create a great value zone by removing as much from the bad bucket (namely price) as possible and hence creating product equity. Additionally, Cost Leadership is a difficult game to play as there often is one dominant winner and everyone else is secondary. When a company chooses low price as its driver, everything about it must reflect that choice— it goes big or goes home.
By contrast, product differentiators get into the great value zone by coming up with a product or service so different that people buy it because they believe it is a better solution to their needs, even if it is not the lowest priced option. This can be demonstrated by:
Abbott Labs' anti-TNF inhibitor product Humira 2012 sales stood at $9.3 billion, cementing the status of Humira as one of the biggest selling products of all time.
Intel enjoyed a 10-year period of unprecedented growth as the most profitable hardware supplier to the PC industry and by the mid-1990 its line of Pentium processors had become a household name.
Boeing chose not to compete with Airbus in the market for superjumbo jets, instead chose to differentiate itself with a smaller, more fuel-efficient airplane (the $155 million Boeing 787 Dreamliner); By year-end, it had received 1030 orders for the Dreamliner, a record number for any airplane. At the same time, Airbus had 304 orders for its $335 million A380.
The final generic strategy is client focus, which goes by a number of names: relationship management, customer experience, client engagement, customer loyalty, or client delight. Companies adopting this strategy stand out because they know their buyers and their buyers’ industry better than anyone else, and they use this knowledge to cater exclusively to those buyers’ needs and desires. For instance:
FM Global is a $5 billion mutual insurance company and the world leader in loss prevention services; FM Global serves roughly 2000 corporations throughout the world in the Highly Protected Risk (HPR) property insurance market sector.
Plymouth Tube Co. has been a leader in the manufacturing of Aerospace Steel Tubing since the Spirit of St. Louis Era (85+ years!)
Boathouse Sports partners with the most elite athletic programs and universities to serve their athletes' performance outerwear, uniform, and training gear needs.
What strategy do you focus on? Let us know in the comments below! After that, follow us on Linkedin at “Encompass-CX” for more content and blogs.