In
business strategy, cost leadership is a strategy aiming to establish a
competitive advantage by having the lowest
cost of operation in the industry.
Cost leadership is often driven by company
efficiency, size, scale, scope and cumulative experience (
learning curve).
A ''cost leadership strategy'' aims to exploit
scale of production, well-defined
scope and other economies (e.g., a good
purchasing 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. 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 ]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 ...
.[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