Low Cost
Differentiation
Preemptive
Strength
Brand identity
Differentiate from other low cost providers to increase volume
Brand identity commands a premium price, increasing margin
Brand identity becomes identifiable with a specific niche
Build brand identity quickly to reduce the threat of new entrants
Weakness
Lack of diversification
Diversify into many products to promote volume sales
Brand extensions
Diversification is not part of this strategy.
Diversification is key to opening new market opportunities.
Opportunity
Geographic expansion
Increase volume
Increase volume
Increase volume
Increase opportunities
Threat
High substitutability
Inherent in the strategy -- low cost defends against this
Differentiation seeks to neutralize this threat
Product uniqueness defends against this threat
There should not be substitutability; if there is another innovation is needed
Sources: Porter, M. / QuickMBA.com (2007)
Brand Identity
Brand identity is one of the major strengths of Kraft, and its brands are household names within its distribution area. While brand identity is not normally associated with a low cost strategy, in some industries most firms compete on low cost and still must use brand identity to help differentiate themselves. Consider the quick service restaurant industry -- all firms seek to compete on price leadership, but the stronger brands (McDonalds, Subway) use their brand recognition to attract more customers and a higher caliber of franchise owners.
The ability of brand to increase prices paid by customers is constrained by the nature of the industry and the intensity of competition, but brand is still used to generate the volume required...
Brand in this situation is not used to increase volume, but to increase margin. The brand is associated with higher standards of quality for which consumers are willing to pay a premium. The focus strategy works in a similar manner with brand identity. When a firm seeks to dominate a niche, the brand is an important element of that because the brand is what identifies the product to the consumer; ideally it will identify the niche as well, signifying market dominance and a close link between brand and product. In a pre-emptive strategy, brand is important because branding can help to lock in first mover advantage -- all subsequent entrants are inherently viewed as inferior. Even when the product moves beyond niche status, the brand's strength if developed correctly during the first-mover years can be maintained seemingly in perpetuity. Coca-Cola, Q-Tips and Starbucks are all examples of first movers whose brand strength continues to contribute to dominant market share even in the face of intense competition.
Lack of Diversification
A challenge for any business is to diversify away from its core business without sacrificing returns. Kraft remains primarily a grocery company, and therefore remains vulnerable to demand conditions (the overall health of the economy) and supply conditions (agricultural commodity prices). A low cost provider answers the diversification question by adding different products and services. Since low cost implies high volume, diversifying provides an opportunity for greater volume. Wal-Mart is expert at this, for example adding food and pharmaceuticals to its core offering to increase volume. Diversification for a differentiated provider is a challenge. The best strategy to address the need for diversification is to leverage one's strengths in other areas to enter new businesses. A good example…
KO Advantages Coca-Cola pursues a differentiation strategy, and has built its company around the pursuit of this strategy. The strengths that the company has -- R&D, marketing, and heavy advertising -- all directly support the differentiation strategy. Coca-Cola uses its strategy to foster sources of sustainable competitive advantage, although the strongest of these is the company's brand. All told, Coke has an excellent strategy that does not result in many missed
Kraft Foods' Competitive Strategy Kraft Foods is a one of North America's largest packaged food companies. To reach its current competitive position the organization is changed to great deal of the last decade, with increased focus on the core products, and the sale or spin-off of the non-core divisions, for example the sale of the frozen pizza division 2010 to Nestle, and in 2012 the demerger of Mondel-z International (Kraft