Question: Low Cost or Differentiation?

Form groups of three or four people, and appoint one member as the spokesperson who will communicate your findings to the class when called on by the instructor. Then discuss the following scenario:

You are a team of managers of a major national clothing chain, and you have been charged with finding a way to restore your organization's competitive advantage. Recently your organization has been experiencing increasing competition from two sources. First, discount stores such as Walmart and Target have been undercutting your prices because they buy their clothes from low-cost foreign manufacturers, whereas you buy most of yours from high-quality domestic suppliers. Discount stores have been attracting your customers who buy at the low end of the price range. Second, small boutiques opening in malls provide high-price designer clothing and are attracting your customers at the high end of the market. Your company has become stuck in the middle, and you have to decide what to do: Should you start to buy abroad so you can lower your prices and pursue a low-cost strategy? Should you focus on the high end of the market and become more of a differentiator? Or should you try to pursue both a lowcost strategy and a differentiation strategy?

1. Using scenario planning, analyze the pros and cons of each alternative.

2. Think about the various clothing retailers in your local malls and city, and analyze the choices they have made about how to compete along the low-cost and differentiation dimensions.