In terms of US based companies, if you think, for
example, of Ford, Ford makes a vehicle called the Focus.
Which in the US market is an entry level product.
It's a cost leader.
It's a car that a lot of people buy because it's affordable,
and it doesn't have, necessarily,
all the extras but because they sell a lot of them, they are able to
achieve total profit level which is acceptable to their shareholders.
You compare that to a company like Rolls Royce or Bentley, and
those are extreme examples of differentiated vehicles.
The customer that Rolls Royce, or Bentley, or Ferrari or
Lamborghini is seeking to please is one that is not as concerned about price.
And so, internally, the company, although not seeking to
pay more than they need to, is seeking higher quality inputs or products.
Perhaps they spend more on labor to make a very customized car
of the highest quality and have lots and lots of extras in the engine,
in the interior of the car, the way it looks on the exterior, etc.
And so does Rolls Royce sell as many units or
as many vehicles as Ford was with its Focus model?
Of course not.
Rolls Royce probably produces in the thousands of vehicles each year,
they also make other things like engines for airplanes.
But, in terms of their vehicles, they don't produce as many, but
they make a lot of money per vehicle.
The profit margin, the percentage that they make on each vehicle is much higher
than Ford makes on each of its Focus cars.
So differentiation strategy is very different.
It's not seeking necessarily to be the highest volume seller of products.
So, in any industry or any sector,
you can find companies seeking to undertake these strategies.
And the argument again for Michael Porter, Dr.
Porter, is that you should chose one or the other.
And it's not necessarily the case that only one of these strategies will work.
Some companies will succeed undertaking the differentiation.
Others can undertake cost leadership.
Just don't try to do both is his major argument.