Cost leadership strategy

1. WHAT IS COST LEADERSHIP ?
An effective business-level strategy to the extent that a firm offers low prices, provides
satisfactory quality, attracts enough customers to be profitable

Challenging: the ability to charge low prices and still make profit




Spend little on advertising, market research, R & D




Achieve superior profitability than other competitors at the same price




Reply on economics of scale to achieve efficiency created by selling more items


2. Some approaches of cost leadership
Low cost in operation processes, distribution chains, raw materials

o p e r a tio n

process

Keep low inventories & only build computers to orders


Offer basic fast-food meals at
low prices

Hire & train inexperienced
employees rather trained
cooks


Sell cheap but stylish
furniture

Source products in low – wage
countries & offer a very basic
level of service


Advantages

Disadvantages



Protect from industry competitors



Affect to the demand



Have high market share if getting high profits



Competitors may lower their cost
structures



Less affected by increased prices of inputs or a fall in price of outputs



Be imitated the cost leader’s methods



Purchase in large quantities increase bargaining power over suppliers



Low quality of products makes business
suffer



Reduce price to complete with substitute products