Cost leadership

Cost leadership is a concept developed by Michael Porter, utilised in business strategy. It describes a way to establish the competitive advantage. Cost leadership, in basic words, means the lowest cost of operation in the industry.[1] The 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 high technology.[2] In the last years more and more companies choose a strategic mix to achieve market leadership. These patterns consist in simultaneous cost leadership, superior customer service and product leadership. [3]

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 and are very effective at such a form of competition, having a low cost structure and management. [1]

References

  1. 1 2 Michael J. Stahl, David W. Grigsby. "Strategic Management". Blackwell Publishing, 1997 ISBN 1-55786-650-3, 978-1-55786-650-9.
  2. ↑ Gavin C. Reid. "Small Business Enterprise: An Economic Analysis". Published by Routledge, 1993, ISBN 0-415-05681-0, 978-0-415-05681-6.
  3. ↑ William Harley Davidson. "Breakthrough". John Wiley and Sons, 2003, ISBN 0-471-45440-0, 978-0-471-45440-3.
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