Cost Leadership and Differentiation Strategy

Cost Leadership and Differentiation Strategy

Cost leadership and differentiation strategy

Wal-Mart

Wal-Mart's founder, Sam Walton, developed the everyday low prices (EDLP) strategy. This strategy hinged upon Wal-Mart's ability to obtain consumer goods at the cheapest possible price and pass these savings on to consumers. In order to achieve EDLP, Wal-Mart began developing close relationships with its suppliers and vendors. These relationships allowed Wal-Mart to achieve cost savings through large volume purchases. EDLP also helped Wal-Mart drive up the total dollar amount customers spent on trips to the store.

Wal-Mart also developed its own distribution network for supplying its retail outlets with consumer goods. This distribution network allowed Wal-Mart to cut out external supply chains and middlemen, further driving down business costs. Owning its own distribution network also helped Wal-Mart avoid costly rate increases from traditional shipping methods.

Starbucks

Starbucks used mostly a differentiation strategy, however it had also used a cost leadership strategy. Its differentiation strategy was exemplified by their stores providing an experience, offering interesting coffee-related drinks in a theatrical kind of atmosphere, their unique Coffee blending and roasting process which enabled them to create an extensive product variety, their employees received great deal of training to become very knowledgeable about coffee in order to provide an exceptional service to increasingly coffee-educated consumers, and their ability to find the perfect location for their stores enabled them to maximize market share in a given area of a city and build their regional reputation