Obtaining a Competitive Advantage Through Cost Leadership and Differentiation

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This assignment will cover how a business can gain a competitive advantage over similar businesses in the same market using sources such as cost advantage and differentiation. What will also be discussed is the value chain model made by Porter, and this assignment will explain what the model was actually designed for. Furthermore, it will be explained how a business can use methods of competitive advantage through various stages of Porter’s Value Chain in order to help it maintain and increase the competitiveness of the business, and this will be done through assessing the operations of the business and locating exactly where any competitive advantage can be gained. Lastly, Porter’s value chain features 9 activities which can each be …show more content…
This therefore cut eight million road miles and saved them 3.75m litres of fuel, and it is from these cost savings which meant that ASDA were “able to extend its price leadership over its rivals” such as Tesco and Sainsbury’s. However some businesses decide to use differentiation instead of cost advantage as a source of competitive advantage. Porter (2004, p.120) states that a firm will differentiate itself “when it provides something unique that is valuable to buyers beyond simply offering a low price”. An example of this would be Dell, who is renowned for their build-to-order service. According to Alkelabi et al. (2006, pp. 18-36) the build-to-order service used by dell accommodates the changing needs of its customer base and the strength of their manufacturing, brand and customer service means that dell is able to succeed using a broad differentiation approach. It is possible for a business to make a hybrid strategy using both cost advantage and differentiation. Hannagan (2008, p.161) states that a hybrid strategy can allow a business to target a “narrow target market” and provides the example of Sun Alliance who can offer “low-cost insurance for the over-50s” which is clearly a more niche market.
The value chain by Porter is a model which was created in order to analyse the sources of competitive advantage within a business. According to Porter himself (2004, pp.33-34) the value chain model

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