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A Cost Leadership Strategy Wins all the Time, Right? Wrong.

August 7, 2012

http://www.statista.com/topics/840/smartphones/chart/528/apple-claims-71%25-of-the-mobile-phone-industry-s-profits/

The iPhone has not been subjected to the claim of being an inexpensive product within the industry. The cellular service providers have not been accused of lowering prices to attract the iPhone owners. In fact, the iPhone is more expensive in every way one wants to view the offering. Yet, they maintain a 71% control of industry profits.

So many businesses and their leadership are focused on a cost leadership model for the generic business strategy today. Maybe it’s the result of so much focus on cheap Asian labor, maybe it’s a phase due to increased efficiencies thanks to computing power, maybe it’s because there are too many MBA’s out there. What does get lost, most of the time, is a focus on delivering value.

Apple has proven, an industry player can enter a commoditized industry and deliver a product/service that shifts the price value line. And potentially disrupt the industry forever. Remember the days before the iPhone when you were “given” a cell phone if you signed a two-year agreement for cellular service? There is so much value in the iPhone that the previous generation phones are being sold in the aftermarket and can bring in enough money to allow a purchase of the newest generation iPhone.

Positive Value is the benefit the consumer receives above and beyond the cost of the product or service. And what each consumer values is not always an economic profit from the transaction. The iPhone is a terrific example. Does a Samsung phone which is less expensive make calls too? Yes. Does it have apps? Yes. Does it have internet access? Yes. Does it have Facebook and Twitter access? Yes. And yet, consumers overwhelmingly find value with the iPhone above the cost of the purchase and cellular service.

Have you reviewed your product and service offerings? Are you focused on delivering value? Do you know what your customers value and are willing to pay up to have? Or are you focused on being the least expensive and that is your value offering? If so, a heavily commoditized consumer product industry will leave itself vulnerable to a value differentiator.

 

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From → business, Strategy

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