Question

At one time, management at General Motors decided to improve the competitiveness of its products by stressing product quality, style, and innovation. The objective was to improve the image of GM vehicles and thus improve sales and brand loyalty. Managers decided to push this strategy in both the manufacturing and marketing divisions of the firm. One of the key moves to implement this strategy was to insist that GM dealers stop price-cutting and push brand value and image instead. GM exerted some control over dealers' pricing/selling strategy in part by reducing the money it set aside for dealers to use in local ads.

Required:

Was General Motors following a strategy of cost leadership or differentiation at this time? Comment on how effective you think the new strategy in dealer relations is likely to be.

Answer 1

The strategy adopted by General Motors is clearly consistent with the product differentiation strategy. Product differentiation strategy focuses on capturing the market share through customer satisfaction and loyalty. This strategy has complete focus on the customer and stresses on product quality and innovation. In the current case as well, General Motors tried to take over its competitors by focusing on product quality and style in order to improve brand loyalty of its vehicles.

Dealer relations are likely to be negatively impacted by this strategy as not only is General Motor asking them to stop price-cutting, they have also implemented control over their pricing strategy by reducing the money set aside for them to use in local ads. Dealers are of the belief that market is always price-driven and that's the ultimate reality. However General Motor should definitely respond to this criticism by focusing and making them understand the fact that brand value is what helps in capturing the market and is the key for long-term growth and success of the business.