Overall Cost Leadership Strategy
Cost leadership can be defined as the absolute lowest cost of manufacturing in an industry. The strategy has to do with pricing and not with leadership. The cost leader in an industry has achieved competitive advantage by having the overall lowest cost compared to other companies in the same market. This can be done by underpricing competitors and then gaining market share or by earning a higher profit margin selling at the same competitive prices.
Advantages Of Cost Leadership
Cost leadership can be very attractive to a company because having low cost can bring the business above-average returns even in a niche where there are a lot of competitors. Also, being the cost leader can protect a business from competition because the competitors can’t beat out the company based on price. When a business has a low-cost position they can also be protected against buyers who try to force lower prices and those buyers will target the next highest competitor. Think of cost leadership strategy as a way to have a defense against suppliers as well as the low-cost leader will have the ability to handle cost increases. Cost leadership is a powerful strategy that places a company in a very strong position against its competitors.