Question

2. The two main sources of competitive advantage are reducing costs or differentiation of the product. For each item below, specify which strategy (low cost or product differentiation) is more favorable? Explain briefly a. b. C. d. Economies of scale exist that are not yet exploited by competitors Economies of scale exist but are already exploited by competitors Homogenous product with limited opportunities for enhanced benefit Some consumers are willing to pay a price premium for certain attributes

Answer 1

a) As the firm has achieved economies of scale but it has not been achieved by the competitors in the market then the firm can easily reduce the cost of the goods and gain an upper hand in the market. This way the firm can easily increase the sale due t lesser price of the same goods.

b) Here, the competitors have also achieved economies of scale because of which the price can' be reduced further. To make a benefit the firm should increase product differentiation. It will make the product different and he can have some control over the price and demand of the product.

c) As the products are homogeneous the firm should decrease the price i.e. sell it at the minimum price. that will ensure he receives the maximum consumers in the market.

d) As some consumers are willing to buy at a higher price product differentiation i.e. selling the own product as a high quality and premium brand will ensure the benefit. Seller should product differentiate.