Cost Leadership

Business Strategy
What is cost leadership?

When the competitive advantage

of an organisation lies in its lower
cost of products or services
relative to what the competitors
have to offer, it is termed as cost
leadership.
Achieving cost leadership

 Accurate demand forecasting and high

capacity utilization

 Attaining economies of scale leads to lower

per unit cost of product/service
 High level of standardization of products and
offering uniform service packages using mass
production techniques yields lower/unit cost

 Investment in cost saving technologies

 Aiming at average customer makes

Conditions under which cost
leadership is used
 Vigorous price based competition

 Bargaining power of buyers

 Differentiation
Benefits
 Survive in the price war

 Profits generated helps to invest in business

activities

 Less affected from powerful buyers

 Less affected from powerful suppliers

 Low cost as an entry barrier

Risks
 Imitation ability of competitors

 Dilute customer focus

 Technological advancement makes the low

cost advantage outdated