When firms pursue both differentiation and cost reduction si

When firms pursue both differentiation and cost reduction simultaneously some get stuck in the middle (resulting in low profitability) and some do not. What accounts for the difference between these two kinds of firms?

Solution

A differentiation strategy is the strategy of developing new product and services that offer unique attribute to the customer that are better or different from competitor’s product

A cost reduction strategy is the strategy where company reduce major expenses from business to increase profits without compromising quality of a product.

The combination of differentiation and cost reduction strategy is called hybrid strategy. Some companies like Zara, GAP, etc. use this strategy to remain competitive in the market. Any business which is stuck in the middle has no clear business strategy. Some of the businesses implement ‘build in the middle strategy’ which tries to balance differentiation and cost reduction strategy in order to build a sustainable profit. A successful company adopt one strategy at a time i.e. executing only one of three strategies – cost reduction, differentiation and niche focus. Some company tries to attempt combination of a strategy, which they ‘stuck in the middle’ resulting into low profitable.