business strategy In the field of management, strategic management involves the formulation and implementation of the major goals and initiatives taken by an organization's managers on behalf of stakeholders, based on consideration of resources and an assessment of ...

, cost leadership is a strategy aiming to establish a

competitive advantage In business, a competitive advantage is an attribute that allows an organization to outperform its competitors. A competitive advantage may include access to natural resources, such as high-grade ores or a low-cost power source, highly skille ...

by having the lowest cost of operation in the industry. Cost leadership is often driven by company

efficiency Efficiency is the often measurable ability to avoid making mistakes or wasting materials, energy, efforts, money, and time while performing a task. In a more general sense, it is the ability to do things well, successfully, and without waste. ...

, size, scale, scope and cumulative experience (

learning curve A learning curve is a graphical representation of the relationship between how proficient people are at a task and the amount of experience they have. Proficiency (measured on the vertical axis) usually increases with increased experience (the ...

). A ''cost leadership strategy'' aims to exploit scale of production, well-defined scope and other economies (e.g., a good

purchasing Purchasing is the procurement process a business or organization uses to acquire goods or services to accomplish its goals. Although there are several organizations that attempt to set standards in the purchasing process, processes can vary gr ...

approach), producing highly standardized products, using advanced technology. In recent years, more and more companies have chosen a strategic mix to achieve market leadership. These patterns consist of simultaneous cost leadership, superior

customer service Customer service is the assistance and advice provided by a company to those who buy or use its products or services, either in person or remotely. Customer service is often practiced in a way that reflects the strategies and values of a firm, and ...

and product leadership. For example, US retailer

Walmart Walmart Inc. (; formerly Wal-Mart Stores, Inc.) is an American multinational retail corporation that operates a chain of hypermarkets (also called supercenters), discount department stores, and grocery stores in the United States and 23 other ...

has succeeded in business due to its cost leadership strategy. The company has cut down on excesses at every point of production and thus are able to provide the consumers with quality products at low prices. Cost leadership is different from price leadership. A company could be the lowest cost producer yet not offer the lowest-priced products or services. If so, that company would have a higher than average

profitability In economics, profit is the difference between revenue that an economic entity has received from its outputs and total costs of its inputs, also known as surplus value. It is equal to total revenue minus total cost, including both Explicit co ...

. However, cost leader companies do compete on

price A price is the (usually not negative) quantity of payment or compensation expected, required, or given by one party to another in return for goods or services. In some situations, especially when the product is a service rather than a ph ...

and are very effective at such a form of competition, having a low cost structure and management. Other aspects of cost leadership include tight operational controls across the business, avoidance of customers whose needs incur additional costs, and limits on expenditure in areas such as advertising and

.Science Direct
Cost Leadership
accessed on 27 November 2024 The concept is one of the generic business strategies developed by

Michael Porter Michael Eugene Porter (born May 23, 1947) is an American businessman and professor at Harvard Business School. He was one of the founders of the consulting firm The Monitor Group (now part of Deloitte) and FSG, a social impact consultancy. ...

References

{{reflist Strategic management Michael Porter