Cost leadership strategies prioritizes on production of standardized products at a very low per-

unit cost to price-sensitive customers. It focuses on minimizing the cost to the organization of
delivering products and services. As stated a while ago, it means being the leader in terms of
cost in the market, but being among the leaders isn’t enough. Note that some other producers
can introduce better prices, thus preventing you from having more market share.
How can you be successful in this strategy? You need to have a large capital investment
in technology, as well as continued investment, continuous product innovation, intensive
monitoring of labor and tight overhead control. These processes will help lower costs and
increase you profits more.
Large capital investments will lead to products which are produced in a better quality,
but will end up sustaining losses (but for a short term). In return, a large market share will be
your reward in the long run. Innovating and improving operations by reducing costs is a must.
Development of products and services should be given high priority to achieve that quality of
products and services the customers need in their lives, but at a cheaper manner. This means
that, as the entity, you should keep costs low while gaining profits, at the same time, avoiding
and eliminating wastages that can impact your profits. Do not confuse this with cutting costs, or
else you will lose the competition against rivals with similar costs but better quality products.
One example here is Walmart, who has more than 11,000 stores globally. The American
supermarket chain achieved low operational costs by using automation and technology, as well
as spending little on human resources. In addition, Walmart works closely with suppliers that
currently dominate industry brands. For its outsourcing costs, the company owns a fleet of
about 3,000 trucks and 12,000 trailers, which meant that they cut on outsourcing costs. What’s
even unique, is that they managed to provide a win-win relationship with vendors by meeting
with the latter to help them cut their own costs.

For this leadership strategy, there are 2 categories: the low cost and best value strategy. In the
first strategy, the entity offers products/services to a vast array of customers at the lowest price
available on the market. For this scenario, assume that 2 entities with similar products are
competing. The real winner here is the company with the lower cost, why? (call a person). It’s
because the product of the winning entity has an advantage, that is, the entity can have a
higher level of profit per sale, because the cheaper the product is, the more customers are
willing to buy it. And, the fact that this company is able to generate more profits means that
they can have the necessary resources to invest in improving their operations and other
departments, like marketing and research and development.

The second strategy emphasizes on better value for money via focusing both low costs and
upscale difference. The strategy’s goal is to keep both costs and prices lower, and at the same
time provide similar quality and features as that of the rivals. One way to adopt this strategy is
to reduce expenses significantly, like rent and utilities. Food trucks are one good example of
best-value strategy. They manage to keep the costs and prices low, while at the same time,
they keep the quality high.

Differentiation (read). So, how can we make this strategy successful? We have various of ways.
One of them is researching and development of products to make them unique and of high
quality, one that can stand out versus its rivals. Another is effective sales and marketing. Vastly
improving the reach of the business by expansion, as well as creative marketing strategies (like
McDonald’s) is another way. Do not just limit it to in-store advertisements, one where there are
posters hung inside the stores. You can post ads in billboards, or even in YouTube, or even print
media like newspapers and magazines. Just make them creative and you can win the
competition.

Focus (read). Under this particular strategy, entities focus on a specific buyer group, product
segment, or geographical market. (call a volunteer). For a person in your age group, what
products do you think are suitable? (Let him/her answer). In this case, this is what the target
market wants/need right now. For example, let me give another example, Rolls Royce. The
British Luxury Car Brand sells high-end luxury automobiles to only rich people. People pay
premiums for that high-quality interior and comfy seats that are unmatched against other
rivals.

There are 2 types: Focus low cost and focus best value. Focus low cost (read). In this case, the
entity focuses on charging low prices relative to other rivals that also compete within the target
market. One example here is Southwest Airlines, based in the U.S.. As a low-cost airliner, expect
it to have cheaper tickets and cheap services, and it serves just like that. S.A. offers only short-
haul, P2P services between midsize cities and secondary airports in large cities found in the U.S.
For focus differentiation or focus best value, (read). Another example here is Rolex. It serves
high-end wristwatches on the market, in addition to it having premium pricing and a brand
image found in magazines, every watch stores, and even sponsorships with celebrities and
athletes.

These strategies imply different organizational arrangements, control procedures,

and incentive systems. Larger firms with greater access to resources typically compete
on a cost leadership and/or differentiation basis, whereas smaller firms often compete
on a focus basis.