The Description of a Business-Level Strategy
A cost leadership strategy may help to remain profitable even with: rivalry, new entrants, and supplier' power, substitute products, and buys' power.
Rivalry: competitors are likely to avoid a price war, since the low cost firm will continue to earn profits after competitors compete away their profits, for example, Airlines.
Customers: Powerful customers that force firms to produce goods and services at lower profits may exit the market rather than earn below average profits leaving the low cost organization in a monopoly positions. Buyers then loose much of their buying power.
Suppliers: Cost leaders are able to absorb greater price increase before it must raise price to customers.
Entrants: Low cost leaders create barriers to market entry through its continuous focus on efficiency and reducing costs.
Substitutes: Low cost leaders are more likely to lower costs to entice customers to stay with their product, invest to develop substitutes, purchase patents.
Differentiation: Value is provided to customers through unique features and characteristics of an organization's products rather than by the lowest price. This is done through high quality, feature, high customer service, rapid product innovation, advanced technological features, image management, etc. For example, some companies this follow this strategy are Rolex, Intel, and Ralph Lauren. Companies create value by:
Lowering Buyers' Costs: Higher quality means less