Although there are examples of firms successfully employing a highly differentiated strategy seemingly without much regard for cost (Hewlett Packard in calculators, for example), and others that have dominated an industry for some period of time with a virtually undifferentiated product at the lowest possible cost (such as Texas Instruments), these easily perceived extremes are rare in practice. A problem with the either/or approach is that most of us know firms that seem to fit both categories. Using the either/or approach of cost vs. differentiation provides little help in distinguishing the players in most industries. Most firms cluster toward the middle of the low-cost/high-differentiation spectrum. As a result, most of the major airlines offer a relatively similar product to the customer, both in characteristics and cost. In this middle ground, where most companies in many industries seem to fall, arises the greatest confusion about strategy.

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Although there are examples of firms successfully employing a highly differentiated strategy seemingly without much regard for cost (Hewlett Packard in calculators, for example), and others that have dominated an industry for some period of time with a virtually undifferentiated product at the lowest possible cost (such as Texas Instruments), these easily perceived extremes are rare in practice. A problem with the either/or approach is that most of us know firms that seem to fit both categories. Using the either/or approach of cost vs. differentiation provides little help in distinguishing the players in most industries. Most firms cluster toward the middle of the low-cost/high-differentiation spectrum. As a result, most of the major airlines offer a relatively similar product to the customer, both in characteristics and cost. In this middle ground, where most companies in many industries seem to fall, arises the greatest confusion about strategy.

More: continued here
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