While all companies make efforts to control costs, there is only one low- cost player in any industry—the competitor with the very lowest costs. Having lower costs than some but not all competitors can enable a firm to stick around and compete for a while. But it won’t win. Only the true low-cost player can win with a low-cost strategy.

All successful strategies take one of these two approaches, cost leadership or differentiation. Both cost leadership and differentiation can provide to the company a greater margin between revenue and costs than competitors can match—thus producing a sustainable winning advantage (figure 4-1). This is ultimately the goal of any strategy.

In other words, life inside a cost leader looks very different from life inside a differentiator. In a cost leader, managers are forever looking to better understand the drivers of costs and are modifying their operations accordingly. In a differentiator, managers are forever attempting to deepen their holistic understanding of customers to learn how to serve them more distinctively. In a cost leader, cost reduction is relentlessly pursued, while in a differentiator, the brand is relentlessly built. Customers are seen and treated very differently. At a cost leader, nonconforming customers—that is, customers who want something special and different from what the firm currently produces—are sacrificed to ensure standardization of the product or service, all in the pursuit of cost- effectiveness. At a differentiator, customers are jealously guarded. If customers indicate a desire for something different, the firm tries to design a new offering that the customers will adore.

And if a customer leaves, the departure drives a stake in the heart of the firm, indicating a failure of the strategy with that customer. It is as simple as the difference between Southwest Airlines and Apple.

Both cost leadership and differentiation require the pursuit of distinctiveness. You don’t get to be a cost leader by producing your product or service exactly as your competitors do, and you don’t get to be a differentiator by trying to produce a product or service

identical to your competitors’. To succeed in the long run, you must make thoughtful, creative decisions about how to win. In doing so, you enable your organization to sustainably provide a better value equation for consumers than competitors do and create competitive advantage.

The other half of an analysis of relative position relates to cost and the degree to which the organization can achieve approximate cost parity with competitors or distinctly lower costs than competitors. These are the key questions to consider on this front: does the organization have a scale, branding, or product development advantage that enables it to deliver a superior value offering at the same cost as the cost incurred by competitors? Or, does it have a scale advantage, a learning-curve advantage, a proprietary process, or a technology that enables it to have a superior cost position? The answers to these questions start to put parameters around the myriad how-to-win options.