Lower Cost Strategy for Kmart - Case Study Example

By bringing down its operational costs an organization can offer its products and services at lower prices. It can also earn higher profits because either the profit margins are greater or the sales volume has increased. Thus an organization that follows an overall lower-cost strategy can gain an edge over its competitors. A cost leadership strategy works well for the company in the event of a price war in the industry. (Kotler, 2006) Another strategy followed by Wal-Mart was the differentiation focus strategy.

Underneath this strategy, Wal-Mart introduced its stores in rural and suburban areas. (Wheelen& Hunger, 2008) By utilizing a differentiation focus strategy a firm differentiates its products from that of its competitors based on some attributes that allow the consumers to perceive the products as different from its competitors. A firm looks for differentiation in a particular segmented target market. Target and Kohl’s followed a differentiation strategy. Target and Kohl’s applied value propositions in which these companies communicated the benefits they can deliver to the customers.

Target flourished well because it provided products at low prices with high-quality catering to youth in urban areas. (Wheelen& Hunger, 2008)2. The amalgamation of both lower cost strategy and differentiation focus strategy was most effective. This can be exemplified by Wal-Mart which utilized both and became the leading story in the retail sector. The lower price of Wal-Mart creates a barrier for the new entrants as these new entrants cannot break through the cost advantage of the leader.

The Wal-Marts differentiation focus allowed it to concentrate on the particular needs of a segmented market more efficiently as compared to its competitors. (Wheelen& Hunger, 2008)Lower Cost Strategy: In the presence of leaders like Wal-Mart and Target, Kmart has few alternatives in making pricing strategies to match up with these leaders.