Definition of a Cost Leadership Strategy

Efficiency in all organizational activities in order to reduce the overall costs of products delivered to customers. Low cost leadership strategy will work effectively when the organization can provide products/services at a lower cost than the competition. The followings are the realms that we identified as factors for Kike’s pursuit for “Cost-Leadership” 1. Mail-order Service, Distribution of Catalogue Kampala started the KEA business through mail-order catalogue in 1947.

The mail-order service enabled Kampala to invest less cash on the storage and display of the furniture provided, thus lowering the cost structure. Further, the widely distributed catalogues are also effective tools of promotion. 2. Independent Supplier Due to the pressure from the retail cartel members, KEA was prohibited to manufacture through some furniture makers. However, Kampala chose to outsource from Poland, which allowed him to access cheaper material and labor cost. 3.

Warehouse-Showrooms, Utilizing Self Control Warehouse, Customizing Studios In 1953, Kampala transferred a disused factory into warehouse-showroom. Some refer to it as a revolutionary act in retail industry. The conversion allowed KEA to further utilize the warehouse space. A single spot – large warehouse serves both as storage space and display area. Besides, in the showroom, there are specially decorated corners called ‘KEA studios’ which demonstrate a real life furniture mix.

These studios serve as platforms for customers to freely customize and visualize their own space without adding costs to KEA. Differentiation On the other hand, differentiation strategy is aimed at delivering products/ services that are different from the product mix of the competition. Although KEA seems to be mainly focused on cost-leadership, we also have identified mom aspects that customers would perceive more differently than traditional furniture manufacturers. 1.

Flat-Package Most products are ‘Flat-packed’ in KEA stores, and this increases the convenience of the goods carriage and transportations. 2. Product Variation Base on the figures in Exhibits, “large assortment” is the second most important factor that attracts buyers to come to KEA. That is to say, customers would perceive KEA as a store with great variations on product ranges, which is different from other retailers. Focus Porter outlined focus strategy as a mix of the above two. It focuses on cost adhering and product differentiation simultaneously in one particular market segment, or a niche.

Overall, we can conclude that KEA started its business “cost- consciously” in the early years. Later, when the organization had accumulated enough experience and fund, it achieved the “Cost-Leadership” in furniture retailing industry. However, in the years following, KEA started to strive for “Differentiation” due to its unique way of incorporating the customer in the value chain (self-serving customers who save cost for the firm and enable low priced products that create value for both ends).