Business Strategy That Works

Cost leadership is a great business strategy you need to know and understand.  Cost leadership can be done by creating economic value which is done by having lower costs than your competitors.  Another way create cost leadership is by product differentiation. With product differentiation, you offer a product or service that customers prefer over a competitors’ product or service.

Let’s look at some cost leadership strategy examples.

Wal-Mart has followed the economic value model by having low costs because of their ability to buy in bulk and have become the cost leader in their market.

Harley-Davidson has used cost leadership to offer a different motorcycle product than their competitors and has dominated the market with a very loyal following of Harley bikers.

When you understand cost advantage you can then get strategic about your pricing and differentiation.

Business owners need to research who has the cost advantage in their market. Is it a competitor? A local company? Armed with this information you can then decide if you will compete on pricing or by differentiation.

If your business is simply in the right place at the right time or you are first into a market you might not need to have the lowest prices and can focus on differentiation.

An example of differentiation and low-cost strategy is Southwest Airlines.  The airline is known for a fun and pleasant flying experience PLUS lower prices.  They even give perks like free snacks which many other airlines have cut out who charge more expensive fares.  This allows them to compete on lower cost and differentiate themselves with extra perks and a fun flying experience, unlike any other airline.  Totally great strategy!

Are you ready to implement a cost leadership strategy? A cost leadership strategy is only as good as its strategy for being implemented. This means your business must be organized to roll this out and all team members must be on board for this.  You need to be certain you have in place some management controls, budgeting policies, have established a company culture that is in alignment with cost leadership, and you have spending policies and credit policies nailed down as well as purchasing policies.

What are you thinking in terms of creating your own cost leadership advantage?

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