Monday, August 27, 2012

Cost Leadership Strategy and Product Specification and Design Choices

In a cost leadership strategy, the focus is not on traditional design problems of form or function, but rather to deliver the lowest retail price at the highest margin with acceptable product quality. Surprisingly, the design thought process has a lot to say about what customers find acceptable within this framework.

Design and Design thinking in strategy concepts

Understanding Customers Important for Cost Leaders

Cost leaders have to dissect the customer value proposition.  A company that examines the value proposition required by its target market may uncover new insights. Such a study may reveal some factors on which the company may be incurring substantial expenditure and yet the customers do not care about the particular feature or facility. Cutting on such frills may help in improving the bottom line. Such cuts on frills can be accompanied by thrust on factors where company’s offering is below the customers’ expectations.

Most popular no frills strategy is pursued by Southwest Airlines which based its strategy on clear understanding of the segment of customers it was going to serve by operating the flight services at lowest fares and prompt schedules. The clear understanding of expectations of the segment it was going to serve and competitive value proposition that this segment was being offered by the aviation industry opened up the real opportunity of lowering its costs and yet maximizing the value of low fares and adherence to schedules for its customers by keeping clear of facilities like baggage transfers, meals, seat arrangement etc., which any way the customers were not bothered about. It is an important point to note that Southwest Airlines has done its marketing well and found a target market and its requirement. It is also important to have a large target market that provides strategic advantage over a long period of time.

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