The cost leading strategy is perhaps the clearest of the three strategies. Under the guidance of this strategy, enterprises decided to become low-cost manufacturers in their industries. The business scope of an enterprise is very wide, serving many industrial departments, and may even operate businesses belonging to other related industries. The management of an enterprise often plays an important role in its cost advantage. The source of cost advantage varies with industrial structure. They can include the pursuit of economies of scale, patented technology, preferential treatment of raw materials and other factors. For example, in the aspect of TV sets, in order to gain a leading position in cost, CRT production facilities with sufficient scale, low-cost design, automatic assembly and global sales scale conducive to sharing development costs are needed. In the security service industry, cost advantage requires extremely low management expenses, a steady stream of cheap labor, and efficient training procedures due to high personnel mobility. Pursuing the status of low-cost manufacturer not only needs to move down the learning curve, but also needs to find and explore all sources of cost advantage. Typical low-cost manufacturers sell products that are close to unemployment or affordable, and they should make a big fuss about obtaining the cost advantage or absolute cost advantage of economies of scale from various channels.
If an enterprise can achieve and maintain the leading position of comprehensive cost, as long as it can make the price equal to or close to the average price level of the industry, it will become an excellent generation in its industry. When the price of a cost-leading enterprise is equal to or lower than that of its competitors, its low-cost status will be transformed into high income. However, a cost-leading enterprise cannot ignore the foundation that makes its products unique. Once the products of cost-leading enterprises are not considered comparable or acceptable with those of other competitors in the eyes of customers, they will be forced to cut prices, making them far lower than those of competitors, so as to increase sales. This may offset the benefits of its favorable cost position. Texas Instruments (watch industry) and Northwest Airlines (air transport industry) are two low-cost manufacturers in this dilemma. The former withdrew from the watch industry because it could not overcome the disadvantages of its unique products, and the latter made efforts to improve marketing, passenger service and travel agency service because of finding problems in time, so that its products kept pace with competitors.
Although cost-leading enterprises rely on their leading position in cost to gain a competitive advantage, they must obtain a favorable position with equal or similar value on the basis of unique products compared with competitors if they want to become an expert with above-average economic benefits. Equivalence on the basis of unique products enables cost-leading enterprises to directly convert their cost advantages into profits higher than those of their competitors; Approximation based on product uniqueness means that the reduction necessary to obtain satisfactory market share is not enough to offset the cost advantage of cost-leading enterprises. Therefore, enterprises with leading costs can obtain above-average income.
Cost leadership strategy generally requires an enterprise to become a cost leader, not just one of several manufacturers competing for this position. Many manufacturers failed to realize this and made a big mistake in strategy. When more than one manufacturer is eager to become a cost leader, the competition between them is usually fierce, because every percentage of market share is considered to be crucial. Unless an enterprise can take the lead in cost and "persuade" other manufacturers to give up their strategies, the consequences on profitability and long-term industrial structure may be as disastrous as some chemical industries. Therefore, unless major technological changes make enterprises completely change their cost position, low-cost leadership is a strategy that relies particularly on preemptive strategy.
The success of cost leadership strategy depends on the skills of enterprises to actually implement the strategy day after day. The cost will not drop automatically, but occasionally. It is the result of hard work and continuous attention to cost. The ability of enterprises to reduce costs is different, even if the scale is similar, the cumulative output is similar or the policy orientation is similar. In order to improve the relative cost situation, it is not so much necessary to make major changes in strategy as to require managers to pay more attention.
Many enterprises fail to fully understand their cost behavior from a strategic perspective, nor can they take advantage of opportunities to improve their relative cost status. Some of the most common mistakes that enterprises make when evaluating and taking measures according to the cost situation include:
1, focusing on the cost of production activities and not caring about others.
When it comes to "cost", most managers naturally think of production. However, a considerable part (if not most) of the total cost comes from activities such as marketing, promotion, service, technology development and infrastructure, which are "often seldom paid attention to" in cost analysis. Throughout the value chain, we often find that relatively simple steps can greatly reduce costs. For example, in recent years, the progress of computer and computer-aided design has had a significant impact on the cost of scientific research.
2. Ignore purchasing.
Many enterprises haggle over every ounce in reducing labor costs, but almost completely ignore outsourcing investment. They often regard procurement as a secondary auxiliary function and pay little attention to management; The analysis of purchasing department often pays too much attention to the purchasing price of key raw materials. Enterprises often let those who have neither professional knowledge nor enthusiasm for reducing costs buy a lot of things; The relationship between outsourcing input and the cost of other value activities is not recognized by people. For many enterprises, small changes in procurement methods will produce significant cost-effectiveness.
3. Ignore indirect or small-scale activities.
Cost reduction plans usually focus on large-scale cost activities and/or direct activities, such as parts manufacturing and assembly. And it is difficult to get enough audit for activities that account for a small part of the total cost. Indirect activities such as maintenance and daily expenses are often ignored.
4. Misunderstanding of cost drivers.
Companies often misjudge their cost drivers. For example, enterprises with the largest national market share and the lowest cost may mistakenly think that the national market share drives the cost. However, the leading position of cost may actually come from the larger regional market share in the areas where enterprises operate. Enterprises can't understand the source of their cost advantage, which may make them try to reduce costs by increasing the national market share. Therefore, it may weaken its cost position by weakening regional concentration. It may also focus its national defense strategy on national competitors, ignoring the greater threat posed by powerful regional competitors.
5. Contacts cannot be used
Enterprises seldom realize all the links that affect the cost, especially the contact with suppliers and various activities, such as quality assurance, inspection and service. The ability to use network is the foundation of the success of many Japanese enterprises. Matsushita Electric Company and Canon Company have realized and made use of this connection, although their policies contradict the traditional production and procurement methods. Failure to understand the relationship will also lead to the following mistakes, such as asking all departments to reduce costs in the same proportion, regardless of the objective fact that raising costs in some departments may reduce total costs.
6. The contradiction of reducing costs
Enterprises often try to reduce costs in a contradictory way. They try to increase market share and benefit from economies of scale, and at the same time offset economies of scale through diversification of models. They set up factories near customers to save transportation costs, but they also emphasize weight loss in new product development. Cost drivers sometimes run counter to each other, and enterprises must carefully handle the trade-offs between them.
7. Unintentional cross-subsidy
When enterprises fail to realize the existence of some different cost-effective markets, they often unconsciously get involved in cross-subsidies. The traditional accounting system rarely measures all the cost differences among the above products, customers, sales channels or geographical regions. Therefore, enterprises may overprice some products in large categories or some customers, and give price subsidies to other products or customers. For example, white wine needs less barrels than red wine because it has low requirements for aging. If the brewer sets the same price for red wine and white wine according to the average cost, the price of low-priced white wine will subsidize the price of red wine. Unintentional cross-subsidies often give competitors who know how to use cost to cut prices and grab business to improve their market position. Cross-subsidies also expose enterprises to competitors who are only concentrated in some overpriced markets.
8. Value added considerations
Efforts to reduce costs are often aimed at improving the existing value chain, rather than seeking ways to reconfigure the value chain. The increase of added value may reach the point of diminishing returns, and the reconfiguration of value chain may lead to a brand-new cost stage.
9, damage the unique image
If an enterprise obliterates its uniqueness to customers in the process of reducing costs, it may damage its distinctive image. Although this may be desirable strategically, it should be the result of conscious choice. Efforts to reduce costs are mainly concentrated on activities that are not conducive to the uniqueness of enterprises. In addition, the cost-leading enterprises will also improve their efficiency as long as they work hard on any activities that can create a unique image without spending a lot of money.
differentiation strategy
The so-called differentiation refers to providing customers with different products and services from their peers. These differences can exist in the following aspects: variety, quality, packaging, service, delivery date, brand image, technical uniqueness, performance characteristics, commercial network and other aspects of uniqueness. It can not only meet the needs of users, but also be difficult to replace competitors in a certain period of time. Differentiation distinguishes the products produced by manufacturers from those produced by other manufacturers in the market. This difference comes from consumers' cognition of products, which can be a difference in material form or just a certain feeling of consumers' psychology.