Direct costs for different strategies

Ddennis7y ago

Hi I was wondering if you could help me with something. Is it true that a company with a cost strategy is much more concerned about a rise in their direct costs than a company with a differentiation strategy and if so why? Is it because in general a company with a cost strategy will have a gross profit which covers their overheads by much less than a differentiation strategy company (there will be much less of a gap) and as a result cannot afford for their gross profit level to fall very far?

kengarrettTutor7y ago#1

A low cost strategy means making your products at a lower cost per unit than competitors. That meams that you can make a profit, eg 25% mark-up, at a low selling price tjat will beat competitor's selling orices at similar profit margins. A differentiating company is selling a productmregarded asmbeing unique, eg a coveted brand. It is not competing on price so even if its costs rise it will still be able to sell at a higher selling price so still making the desired profit.

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