Making Cost Leadership Strategy Simple

When I wrote my last article on cost leadership strategy I received a lot of comments on Facebook and through Facebook messenger so I felt I needed to simplify the message.  This article will make cost leadership very clear.

Starting with the basics – strategy is a set of competitive tactics designed to generate more business successes and achieve more clients who are satisfied so a company can hit their financial goals.  Once a company decides on a strategy they also need to measure the strategy regularly to be sure the strategy is bringing about the desired results and if it is not the strategy needs to be tweaked.

Business strategy can be based on how to have happier customers, how to grow the business, how to handle changes in an industry or market, new opportunities, financial objectives, etc.

Before I help a company with business and marketing strategies I start them off with a strategic plan which maps out where the business wants to go, what Key Performance Indicators need to be met, what the desired outcomes are, the mission and vision of the company and then we look at all business and financial objectives and create a comprehensive business strategy to achieve their goals.

When I am consulting with a company, we roll out strategies and begin implementing them and we look at how to execute each strategy effectively so that the desired results are achieved by the company.  A strategy is not a one-time thing. Business conditions change all the time and new processes and procedures are discovered.  This is why strategy must always be evaluated and adjustments need to be made and strategies modified.

A business needs to examine what is happening externally with their industry and their competitors to keep on top of strategy. In order to be the dominant player in an industry, a business needs to be competitive and to be serving and satisfying their customers with a distinct competitive advantage of some sort.  To be competitive a business needs to attract customers regardless of competition. By having a competitive strategy that makes a business unique they are more likely to be successful.

There are 5 types of strategies I recommend to business owners.

  1. Overall low-cost leadership
  2. Best-cost provider
  3. Broad differentiation
  4. Focused low-cost
  5. Focused differentiation

This article will deal with overall low-cost leadership only.  This strategy means your company wants to be the overall low-cost provider in your industry. In order to do this, you must know the costs of everything related to doing business. Each year you must be lowering your costs and cutting out things that are not helping you to be the low-cost competitor in your niche. Your organization, if using this strategy, has decided to compete based on price and must be negotiating for low prices. Why is this effective? Low cost is a significant barrier to entry for many customers.

Overall low-cost leadership works when the price is a very important force in consumer decision making and there isn’t a lot you can do to differentiate your product over competitors. It works best when you have a large corporation that purchases a lot and can get lower prices from distributors because of their significant bargaining power.  In other words, unless you are a big chain like Walmart or Costco and can have distributors lower their prices to you so you can pass that on to consumers, this is not a strategy I recommend pursuing.

I think this simplifies strategy and low-cost leadership.