Cost Leadership Examples

Thanks for the patience! 🙂 Now that we have a better understanding of this particular competitive
strategy, let’s dive right into our Cost Leadership examples:

1. RyanAir

cost leadership examples - ryan air

Cost leadership examples #1: Ryanair

RyanAir is probably one of the most famous examples when it comes to cost leadership. Founded in
1984, the Irish based budget airline (with a fleet size of 469 airplanes including subsidiaries) carries
more international passengers than any other airline in the world.

The company’s competitive advantage strategy is based on their intent to outperform competitors by
providing air travel service at the lowest unit cost possible. This is achieved in a variety of ways,
including:

Considerable bargaining power over suppliers, which helps the company keep its operating costs
low;
Little aircraft variety (mainly Boeing 737-200), allowing them to purchase spare parts in large
quantities;
Negotiation power with airport operators, demanding low landing and handling fees, in addition to
flying to less popular airports;
Lack of differentiation services such as loyalty schemes, free food, in-flight entertainment, airport
lounges, premium cabin, etc.

And others! The company’s competitive advantage strategy is especially attractive for price sensitive
customers.

2. Walmart

cost leadership examples - walmart

Cost leadership examples #2: Walmart

Next on our list of Cost Leadership examples is Walmart.

Walmart is a US multinational retail corporation that operates 11,484 supermarkets and discount
stores across 27 countries. Its competitive advantage strategy is based on selling branded products at
low costs, attracting the largest number of customers possible.

The company has been very effective at establishing a competitive advantage in costs in multiple
ways, including:

Achieving low operational costs through automation & technology;

Minimized spending on human resources (including very low wages);
Working closely with suppliers that dominate industry brands;
Own fleet of 3,000 trucks & 12,000 trailers, cutting on outsourcing costs;
And even meeting with vendors to help them cut their own costs, building a win-win relationship;

Additionally, Walmart implemented a satellite network system to share information through the
company’s network of stores, distribution centers, and suppliers.

This system also helped them consolidate orders for goods, enabling Walmart to buy larger quantities
at lower prices.
 3. Primark

primark cost leadership examples

Cost leadership examples #3: Primark

Our list of Cost Leadership examples continues with Primark, an Irish fast fashion retailer with 370
stores across 12 countries. The company offers rock bottom prices that undercut their competitors
considerably, which is mainly possible due to their low operational costs.

When it comes to its competitive advantage strategy, Primark is doing some things differently than
other brands. These thing allows them to achieve a leadership in costs in a highly competitive
industry:

Huge quantity of stock – by buying in bulk for all their stores, Primark manages to cut on costs and
achieves the economies of scale that we talked about previously.
Little branding and advertising – the company also spends little to no budget on advertising, relying
mainly on their social media accounts and word of mouth.
Efficient supply chain – Primark has streamlined its supply chain processes, ensuring that no extra
costs occur through unnecessary activities.
Reduced time-to-market – thanks to the company’s computerized custom clearance and strong
warehousing and distribution network.
Outsourcing – Primark outsources the manufacturing of its clothes to developing countries such as
India, which offer cheaper labor.

Considering all these efficiencies and operational strategies, it is not a surprise that Primark has
gained a significant competitive advantage through low costs.

4. McDonald’s

Cost leadership examples #4: McDonald’s

Of course, there can’t be a list of Cost Leadership examples without one of the most famous brands in
the fast food industry – McDonald’s. But how does the company achieve its competitive advantage?

Let’s take a look:

Rapid delivery of food – McDonald’s has optimized the processes of cooking food, making them
simple and easy to learn by all employees, reducing the learning curve as much as possible.
Training – additionally, the company has a division of labour that allows them to recruit and train
freshers as opposed to hiring already trained cooks, which allows them to pay low wages.
Vertical integration – compared to competitors, McDonald’s owns the facilities that produce the
the ingredient mixtures for their products, further minimizing its costs.

In other words, the company manages to cut costs not only when it comes to raw materials and
optimized human resources, but also by high asset utilization – yes, the one we saw in the previous
point.

Because they are able to produce and deliver the food as fast as possible, they are able to serve more
clients as opposed to their competitors in the same amount of time.

5. IKEA

cost leadership examples ikea

Cost leadership examples #5: IKEA

Needless to say, the famous Swedish furniture retailer has absolutely revolutionized the furniture
industry.

By producing huge quantities of standardized products that people can actually assemble themselves,
IKEA has gained a significant competitive advantage with its cost leadership strategy. Today, the
multinational group operates 433 stores across 52 countries.

IKEA is an absolute leader in the furniture industry when it comes to low costs, and here is why:

Standardized products – as opposed to competitors, IKEA doesn’t offer personalized products.

Practically all of them are standardized, which allows the company to produce them in huge
quantities for all of its stores worldwide. And achieve economies of scales that smaller competitors
are just not able to.
Self – assembly – the retailer seeks for suppliers who are able to manufacture quality subassemblies
at the lowest costs possible, with customers having to assemble the furniture themselves. Which is
one reason why their prices are so low, as IKEA doesn’t spend budget on employees for the assembly
process. You could hire them additionally, but they are not included in the basic product price.
Outsourcing – as many other companies do, IKEA also outsources the manufacturing of its products
in low-wage countries, which allows them to cuts on costs additionally.

Interestingly enough, IKEA also follows a differentiation strategy to a certain extent, along with its
cost leadership advantage. The company practically invented a completely new and innovative
business model that people instantly loved.

6. Amazon

Cost leadership examples #6: Amazon

Next on our list of Cost Leadership examples is the multinational king of ecommerce – Amazon. When
it comes to Porter’s concept, the company’s core strategy is clearly cost leadership compared to other
brick and mortar retailers.

Amazon achieves its competitive advantage in multiple ways, including:

Economies of scale – the company has huge warehousing facilities and processing capability, thus
being able to cut on costs through physical economies of scale.
Advanced technology – by using advanced computing and networking technologies, Amazon
achieves maximum operational efficiency (and minimized costs).
Process automation – the company has managed to automate a lot of operational processes,
including purchase processing and delivery scheduling, among others.

The main goal of Amazon is to develop a competitive advantage through continuous improvement of
IT infrastructure. However, just as we saw with IKEA, the company is also achieving certain levels of
differentiation as well.

For example, one way the company has managed to differentiate itself is through customer reviews
and feedback, encouraging customers to buy more from Amazon. And now, on to the next on our
collection of cost leadership examples:

7. Lidl

Cost leadership examples #7: Lidl

Our list of Cost Leadership examples continues with Lidl, a German international discount
supermarket chain that operates over 10 thousand stores across Europe and the USA. The company
maintains a low cost business model which is a huge part of its success.
Here is how Lidl achieves its competitive advantage:

Supply chain – by working closely with suppliers, the company aims to minimize supply chain costs.
As a consequence, they are also able to offer lower prices for their customers.
Private-label brands – according to Business Insider, 90% of the products in Lidl stores are private-
label brands – in other words, products manufactured exclusively for the company. This allows Lidl to
cut out the middleman, eliminating additional supplier costs.
Limited product selection – Lidl offers a high volume of products, but across a limited selection of
brands. This limited selection gives the company more buying power with its suppliers, as they offer
bigger quantities of fewer brands for each product.
Low labor costs – compared to other supermarkets, Lidl’s staffing is minimal, and employees are
cross-trained to be able to work in any section. The company also has a very efficient technology and
automation in the back room to minimize human interaction.

Additionally, the company cuts costs on things like lighting, having stores use natural light whenever
possible. Lidl also doesn’t spend a lot on Marketing and advertising.

And that was all from me for today! Thank you for taking the time to read my article on Cost
Leadership examples, and I hope to see you in the next one!