Cost Leadership Strategy

Your company can use cost leadership to have a competitive advantage in your market. You can be seen as the low-cost leader and own the company that operates with margins that are greater than your competitors. You simply have to provide your products or services with features that your customers will accept at the lowest cost in comparison to your competitors.  Typically this works best for product based companies that can provide their goods with no-frills or in a standardized way.  Just remember that your quality and service must still be on par with competitors to hold your advantage.

Two advantages of being the cost leader are most of your competitors won’t compete with you on price and typically customers won’t try to negotiate with you as the cost leader.  

A Few Examples To Get You Started…

Here are some examples of companies using cost leadership as their competitive strategy and crushing it.  These should kick-start a few ideas for you.

  1. WalMart – every day low prices that are far below their competition selling their items at low prices with high volume and low margins.
  2. McDonald’s – low margins using inexperienced employees and few managers keeping staff costs down, margins high and prices low
  3. Ikea – cheap yet stylish furniture with a very basic level of service that allows them to have lower prices that yield a lot of customers 
  4. Southwest Airlines – lowest prices with little frills for their passengers who get the cost savings of flying the low-cost leader

 

What actions can you take to implement a cost leadership strategy?