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BlogEntrepreneurs Ask: What Is Cost Leadership Strategy

August 7, 2017

Inquiring Minds Want To Know…

I was hosting an event last week and the question of cost leadership came up. Let me make cost leadership super simple in this article. It is a decision every business owner must look at as they determine their overall business strategy.  You need to know how you will build and then maintain a significant market share in your market, what your Core Unique Positioning will be and what your value proposition will be to your target market and then have a strategy that will position your company.  At the same time, you must decide how your company will be reflected in terms of cost leadership.

You must make a strategic decision as to whether your Core Unique Position in the market will be based on cost leadership or on value differentiation. If you select cost leadership when you will need to develop innovative ways to improve the way you do business and cut costs. If you decide to differentiate your business in terms of value then you must be the innovator in your market.  In my experience, my most successful clients combine value differentiation with cost leadership strategies.

Whole Foods has done a great job of both, in my opinion. They began as a small natural foods market in 1980 and quickly became a market leader with their Core Unique Position of organic products and quality foods. They were not a price leader and were expensive. Soon other lower priced options began to crop up.  Whole Foods has now refocused their mission and found ways to cut costs so they can keep a competitive advantage in their market.

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When looking at your business you need to answer these questions:

Who is my target market?

What outcomes or results can we give them?

Why do we want to help these customers?

How will we help these customers?

Once you answer these questions you can then decide if your competitive advantage will be to offer products and services that have a cost advantage (like Walmart) or if you will ask for a premium price from a product or service that is unique in your market and has a differentiation advantage (like Coca Cola) or like I do in my business.

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