TO: Joan Smithfield, CEO
FROM: Luis Rivera
DATE: 01 April 2022
SUBJECT: Analysis Product Line
A. Undoubtedly, Smithfield's Board of Directors can rely on Porter's
Competitive Advantage model to make investment decisions in the
following ways. First, the Board of Directors can utilize the Low Price
Leadership Strategy to invest in mass-produced, mass-marketed, and lowest
selling price furniture. Therefore, a low-cost strategy enables the company
to become the leading dealer in providing low-cost furniture in the market,
thus sustaining existing customers and attracting many potential customers
(Lumen Learning, n.d.). Nonetheless, a low-price leadership strategy will be
effective and successful if Smithfield Custom Furniture maintains the
position of offering low-cost furniture in the industry. Thus, the company
will appeal to a unique segment in the market and entire industry if it
becomes the leader in providing furniture through a low-cost strategy.
On the other hand, Smithfield Custom Furniture can utilize the
differentiation leadership strategy to invest in an upscale line of furniture,
custom-crafted and produced from the most expensive and exotic woods
and exclusively marketed to the top 7.5% worldwide income earners. This
alternative will mainly focus on high-income households. Thus, the company
requires a skilled workforce to provide unique features to attract customers
and differentiate the furniture from those produced using a low-price
strategy. More importantly, the features and the design used to create the
furniture should convince the customers that the quality is way better than
what the competitors are providing in the market to demonstrate the value
of their money (Lumen Learning, n.d.).
B. Upon comparing the low price leadership strategy to the differentiation
leadership strategy, the best strategy for Smithfield Custom Furniture is the
low price leadership strategy. Typically, this strategy will be effective for
the company because Smithfield will offer value furniture to the customers
at a lower price than the competitors, thus achieving a competitive
advantage. The low price strategy makes products affordable to customers,
thus retaining existing customers and attracting more potential customers,
and gaining a competitive advantage (Porter, 1986, pp.9). Smithfield
Custom Furniture will also use this strategy to generate more profits
because the volume of goods sold will remain high. After all, the cost is
affordable during production and sales. The strategy is better than the
differentiation leadership strategy that only targets 7.5% of the customers,
thus reducing the market share and customer base. Overall, a low price
leadership strategy does not require an intensive marketing campaign,
unlike a differentiation leadership strategy that requires the company to
convince customers to buy furniture at premium prices.
C. The following action is taken upon accepting the recommendation to
embrace the low price leadership strategy. First, it is essential to perform an
industry analysis or industry overview to understand the market share and
size, thus understanding how the industry operates (PurdueLibraries, n.d.).
An industry overview help to determine whether reducing the furniture
price will generate more profits to achieve a return on investment (ROI). For
example, the company will remain operational and sustainable in the market
after embracing this strategy since the volume of goods sold will continue
increasing. In the long run, customers will become loyal to Smithfield
Custom Furniture because the prices are affordable and attractive. The
market share will also increase, and the company will continue generating
reasonable profits. Thus, the best action to take is to determine the
correlation between the low price strategy and the profit generated by the
company.
References
Lumen Learning. (n.d.).
Stages and types of strategy | Principles of
management.
Retrieved from https://courses.lumenlearning.com/wmopen-
principlesofmanagement/chapter/stages-and-types-of-strategy/
Porter, M. E. (1986). Changing patterns of international competition.
California Management Review
,
28
(2), 9-40.
https://doi.org/10.2307/41165182
PurdueLibraries. (n.d.). Introduction to Industry Analysis.
Youtube
. [Video
File]. Retrieved from https://youtu.be/5DFd-ZNbNX4
