Organization Specific Approaches Listed [Differentiation, Cost Leadership,

¶ … organization specific approaches listed [Differentiation, Cost Leadership, and Response] (Figure 2.4 pages 38). Support position references specific actions, policies, events demonstrate opinion makes sense.

Porter generic strategies: Cost leadership, differentiation, response

Cost leadership

The organization that has most famously deployed a cost leadership approach to pricing is Wal-Mart. Wal-Mart's slogan is that it offers the lowest prices all of the time. Although some stores may occasionally offer deeper discounts on specific products, in general Wal-Mart offers the most consistently low prices of any 'big box' retailer. It does not necessarily offer the highest quality or even the greatest selection, but it is almost always the cheapest, compared with its major competitors. It is a large, general retailer and although its primary demographic may be lower-income customers, many consumers with a variety of retail needs shop at Wal-Mart based on price.

Differentiation

Wal-Mart is able to pursue a cost leadership strategy because it is such a large organization, it can operate on an economy of scale. It also can reduce costs at every link of its supply chain, by using outsourced labor and keeping careful watch over inventories. It uses a 'Just In Time' inventory approach, forcing suppliers to provide small batches of inventory at a moment's notice (Atkinson 2006). This keeps stockpiled inventory down and even though it strains suppliers, they comply because of the power of Wal-Mart. Smaller organizations that cannot compete with Wal-Mart using such tactics must pursue a differentiated approach, offering by a unique product that may not be the cheapest form of the item, but has a built-in audience.

Whole Foods is an excellent example of this approach. Although Wal-Mart is the largest purveyor of organic grocery items, Whole Foods is expanding across the nation -- even in a recessionary environment with a nickname of 'Whole Paycheck.' Whole Foods offers foods that are difficult to find elsewhere, such as gluten-free items, grass-fed beef, and organic products that are too 'boutique' and have too small of a demand segment for a large retailer to carry them. However, although Whole Foods has been offering some cheaper items, in deference to customers tightening their belts, ultimately it has thrived upon the principle that "Americans enjoy eating, they enjoy shopping. Food is this incredible, sensual, pleasurable thing, and our idea is to create stores that enhance that experience" (Paskin 2009). A company can compete within a focused market (organic food) on a differentiated strategy alone and ignore price. However, a company can also offer a differentiated product that, within its niche, is considered low-priced, such as some mass market organic products attempt to do, like Whole Food's major competitor Trader Joe's.

Response