helen mba _2 - Nelson Mandela Metropolitan University

Cost leadership results when the organisation prices goods and services around theaverage of the market, and earns profits because its costs are lower than those ofrivals (Thompson, 1997:21), or when the organisation works hard to achieve thelowest production and distribution cost, to price lower than competitors and winmarket share. (Kotler, 2000:80). Thompson (1997:289) adds that cost leadershipdoes not necessarily imply that the company will market the lowest price product orservice in the industry. Often the lowest priced products are perceived as inferior, andas such appeal to only a proportion of the market.Low cost, therefore, does not necessarily mean “cheap” and low cost companies canhave upmarket rather than downmarket appeal. Their aim is to secure a costadvantage over rivals, price competitively relative to how their product is perceived bycustomers, and achieve a high profit margin.1.3.5 DifferentiationJohnson and Scholes (2002:15) define differentiation as the provision of a product orservice regarded by the user as different from, and of higher perceived value than, thecompetition.According to Thompson (1997:21), differentiation is where value is added in areas ofsignificance for customers, who then are willing to pay a premium price for thedistinctiveness.1.3.6 Core competenceJohnson and Scholes (2002:156) state that core competences are thosecompetences which critically underpin the organisation’s competitive advantage.Johnson and Scholes (1999:161) provide an example of core competence in theautomotive industry. Ford and General Motors dominated the global market in the1950s and 1960s through the critical success factors of market access, supported by19