Cost leadership

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In business strategy, cost leadership is establishing a competitive advantage by having the lowest cost of operation in the industry.[1] 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.[2] 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 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]

The concept of cost leadership was developed by Michael Porter.

References[edit]

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