Cost leadership strategy

Cost Leadership / Low-cost Business Strategy:
A cost leadership strategy is an integrated set of actions designed to produce or deliver goods or services at the lowest cost, relative to that of competitors, with features that are acceptable to customers.

1. Cost Leadership Strategy / Low-cost Business Strategy Prof. (Dr.) Nitin Zaware 1 Prof.(Dr.) Nitin Zaware

2. Cost Leadership / Low-Cost Business Strategy: The concept of generic strategies for gaining competitive advantage has received considerable attention recently in the business policy field. Competitive Strategy, a modern classic of business thinking, provides a strong conceptual foundation for developing corporate strategy. Generic competitive strategies are the marketing strategy any of three strategies for marketing products or services: cost leadership, differentiation, and focus. The cost leadership strategy implies supplying products in a more cost-effective way than competitors do. 2 Prof.(Dr.) Nitin Zaware

3. Cost Leadership / Low-cost Business Strategy: A cost leadership strategy is an integrated set of actions designed to produce or deliver goods or services at the lowest cost, relative to that of competitors, with features that are acceptable to customers. Achieving Cost Leadership : 3 Prof.(Dr.) Nitin Zaware

4. Achieving Cost Leadership : 1) Demand Forecasting : Accurate demand forecasting and high capacity utilization is to be done to realize cost advantages. 2) Economies of Scale : Economies of scale are to be attained. They lead to lower per unit cost of product or service. 3) Standardization : High level of standardization of products is needed. Uniform service packages can be offered. Mass production techniques are to be used. All this yields lower per unit costs. 4 Prof.(Dr.) Nitin Zaware

5. Achieving Cost Leadership : 4) Aiming at Average Customer : Aiming at the average customer makes it possible to offer a generalized set of utilities in a product /service to cover a greater number of customers. 5) Use of Cost Saving Technologies : Investments in cost-saving technologies can help a firm to squeeze every extra paisa out of the cost, making the product /service competitive in the market. 6) Differentiation Withholding : Withholding differentiation till it becomes absolutely necessary is another way to realize cost-based competitiveness. 5 Prof.(Dr.) Nitin Zaware

6. Benefits of Cost Leadership Strategy: 6 Prof.(Dr.) Nitin Zaware

7. Benefits of Cost Leadership Strategy: 1 ) Cost Advantage : A firm is protected against the ill effects of competition if it has a lower-cost structure for its products and services. 2) Capacity to Absorb Increased Price : Powerful suppliers possess a higher bargaining power to negotiate price increase for inputs. 3) Price Reduction : Powerful buyers possess a higher bargaining power to effect price reduction. 7 Prof.(Dr.) Nitin Zaware

8. Benefits of Cost Leadership Strategy: 4 ) Minimizes Threat : The threat of cheaper substitutes can be offset to some extent by lowering prices. 5) Effective Entry Barrier : Cost advantage acts as an effective entry barrier for potential entrants who cannot offer the product / service at a lower price. 8 Prof.(Dr.) Nitin Zaware

9. Limitation of Cost Leadership / Low-cost Business Strategy : 9 Prof.(Dr.) Nitin Zaware

10. Limitation of Cost Leadership / Low-cost Business Strategy: 1) Possibility of Duplication of Cost Reduction Technique : The duplication of cost reduction techniques makes the position of the cost leader vulnerable from competitive threats. 2) Dilution of Customer Focus : Cost leadership is obviously not a market - friendly approach. Severe cost reduction can dilute customer focus and limit experimentation with product attributes. 10 Prof.(Dr.) Nitin Zaware

11. Limitation of Cost Leadership / Low-cost Business Strategy: 3 ) Reduction in Scope of Product / Service : Depending on the industry structure, sometimes less efficient producers may not choose to remain in the market owing to the competitive dominance of the cost leader. 4) Great Threat of Technological Shifts : Technological shifts are a great threat to a cost leader as these may change the ground rules on which an industry operates. 11 Prof.(Dr.) Nitin Zaware