Question

1. Research Amazon. How has this firm been able to combine overall cost leadership and differentiation strategies?

2. Think of a firm that has attained a differentiation focus or cost focus strategy. Are its advantages sustainable? Why? Why not? (Hint: Consider its position vis-à-vis Porter’s five forces.)

3. Think of a firm that successfully achieved a combination overall cost leadership and differentiation strategy. What can be learned from this example? Are the advantages sustainable? Why? Why not? (Hint: Consider its competitive position vis-à-vis Porter’s five forces.)

Please insert references found

Answer 1

Amazon is not just an e-commerce company but a whole ecosystem. They have divisions that takes care of the website and its maintenance AWS, logistics and products like Alexa and even platforms like Amazon prime that competes with others like Netflix. They have built a brand image of being reliable, fast and economical. Amazon’s strength in processing capability, automatic warehousing, good supplier relations, and efficient logistics helps them to be a cost leader. Apart from that, they differentiate themselves in services being a customer centric company. They promptly act on customers feedback that leads to building loyalty.

Let's consider the case of Reliance JIO telecom in India. Jio has kept the prices very low so that everyone can afford it. This is one of the biggest strengths and the reason due to which all the competitors and the telecom industry itself went into turmoil after Jio’s launch. Reliance Jio is based on the VoLTE technology which was not used by Indians providers. This technology has a benefit of routing voice calls over data, hence, reducing costs. This is what enabled Jio to come up with such low prices. The VoLTE technology also enabled them to use a single spectrum for voice and calls. This helped them in cost reduction as spectrum auction takes up the major chunk of initial investment.

But this strategy of JIO is not sustainable. The industry is highly competitive. All the competitors want to have maximum users and to get that they are willing to go to any extent. As soon as Jio was launched, Airtel and Vodafone both reduced their prices and provided free call service too. The easy portability also helps users to switch from one provider to another without having to change their mobile numbers. This is a threat as well as a benefit as people can switch from Jio or Switch to Jio easily if they do like service of one provider. So a need to differentiate the product was necessary. They launched complementary products and services like JioTV, Jio App Suite and LYF 4G feature phone.

The learning from this example is that price war is a dangerous game that might lead to revenue loss for all the competitors. So there is a need to differentiate the product where the customer sees value not only of the base product but with the associated services as well.