how to implement cost leadership strategy

The first type of focus strategy is to become the cheapest offering in a highly targeted market segment. The global online retailer operates with a razor thin profit margin and succeeds due to a combination of economies of scale, innovation of various business processes and a constant business diversification. In many settings, cost leaders attract a large market share because a large portion of potential customers find paying low prices for goods and services of acceptable quality to … Accordingly, this strategy has objective to employ either cost leadership strategy or differentiation strategy to a part of market. A cost leadership business-level strategy is a strategy that businesses use to increase efficiency and reduce production costs to make it below that of the industry average (or competition in the area). Porter's generic strategies describe how a company pursues competitive advantage across its chosen market scope. Some businesses rather follow the low cost way by striving for efficiencies and economies of scale rather than focusing on differentiating themselves from the competitors in a way other than price. Good procurement, specialization and efficiency will enable entrepreneurs to take advantage of local networks, focus on quality, and maximize opportunities. By minimizing the price to increase the profits. Campbell et al. The cost leadership strategy in business was developed by Michael Porter regarding competitive advantage.The ultimate goal is to achieve the lowest cost of manufacturing and operating your product within the industry. 1. Cost leadership strategy is a strategy to gain a competitive advantage by manipulating the cost of production. A company can show the makeup of costs all the way from the raw materials phase to the end price paid by the ultimate customer on a value chain (see Exhibit I). Using the Functional Structure to Implement the Cost Leadership Strategy - This section presents the structural dimensions that support a strategic approach and describes the characteristics of a functional structure for a firm using the cost leadership strategy. The price or cost leadership strategy reflects the influence of a series of tools introduced and popularized by the Boston Consulting Group (BCG). This is similar to a cost-leadership strategy, but more highly specialized. Cost Leadership. (2002) purport that value chain analysis is central to identifying where cost savings can be made at various stages within it and its internal and external linkages. Instead, they claim a best cost strategy is preferred. McDonald’s generic strategy of cost leadership enables the company to sustain its market leadership. Donald M. DePamphilis Ph.D., in Mergers, Acquisitions, and Other Restructuring Activities (Fifth Edition), 2010. Another way create cost leadership is by product differentiation. A cost leadership strategy aims to utilize scale of production, well defined scope and other economies such as a good purchasing strategy, producing highly standardized products, and using modern and current technologies. Systems and Structures The first three principles of strategic leadership involve nontraditional but highly effective approaches to decision making, transparency, and innovation. Business Strategy That Works Cost leadership is a great business strategy you need to know and understand. This intensive growth strategy agrees with McDonald’s broad differentiation generic strategy in terms of new products that make the company distinct. Low-cost leadership strategies enable an organization to develop standardized products in large volume at low cost, which give that organization a competitive edge over the competitors in the market. 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