To achieve overall cost leadership, firms need to focus on scaling up production, improving efficiency, and minimizing costs throughout the value chain. However, there are potential pitfalls that can hinder this strategy. These include neglecting specific value chain activities, leaving the firm at a disadvantage in terms of competitiveness, being vulnerable to price increases in inputs, facing imitation by competitors, failing to differentiate enough to provide acceptable quality to customers at a low price, and encountering customer demands for low prices due to easy access to cost information.
For differentiation strategies, firms focus on providing a perceived quality advantage that allows them to charge a higher price for their goods. However, there are potential pitfalls that can occur with this strategy. These include providing a difference that customers do not value, differentiating too much beyond what customers desire, charging too high a price, facing imitation by rivals, diluting the brand image, and a difference in quality perception between the firm and its buyers.
For focus strategies, firms appeal to a narrow segment of the market either by offering low-cost products or unique products. However, there are potential pitfalls that can hinder this strategy as well. These include the erosion of price advantages over competitors, imitation of product and service offerings, and the loss of focus advantage as less-focused competitors offer similar products and services at prices that the niche customers prefer.
