The firm sells its products either at average industry prices to earn a profit higher than that of rivals, or below the average industry prices to gain market share. In the event of a price war, the firm can maintain some profitability while the competition suffers losses. Even without a price war, as the industry matures and prices decline, the firms that can produce more cheaply will remain profitable for a longer period of time.
How do you get your business ready for this? We provide some tips in this article.
We know that adopting the low-cost leadership strategy is not viable for every business. If you have determined Low cost leadership go for this approach, then here are some tips on how you can make this strategy work for your business.
Look at your existing technological capabilities Being a low cost provider requires plenty of flexibility in product manufacturing. You need to be able to respond quickly to shifts in market dynamics. Therefore, you cannot afford to maintain expensive equipment designed to manufacture specific products.
Sell off such equipment or unnecessary components. Invest your capital in other technology areas such as coming up with innovative techniques for cost reduction.
Evaluate your product Look at your existing product, and determine whether your targeted market segment really needs its existing attributes.
Often, price-sensitive customers want products that fulfil their promise of delivering one result. The other add-ons, which are costing you and also the customer, are not needed.
Find cheaper materials We are like to have many choices on the materials available for use in products. Expensive materials don't necessarily mean good quality, while lower prices don't always equate to inferior quality.
Never compromise on quality.
It pays to do your research and test some inexpensive available materials for usage in your products. In the long run, your business becomes more cost-effective, and thus in a better position to continue your low-cost leadership strategy.
Don't spend millions on advertising Your price tag already garners attention from consumers. You don't need to spend huge amounts of money on marketing to create more hype for your brand. I am not suggesting that you cut out marketing totally, but that you spend only on what's definitely going to benefit your sales.
For example, reach out to your customers by providing samples of your new and improved product, emphasizing the attractive price, and give a few clues on how you manage to offer this price. People are wary of things that seem inexpensive yet claim to be of good quality.
It is thus important to communicate to them that you have implemented a new production process that allows production costs to be cut, for example.
They want to believe you, and you need to provide information to back your business up. Your position as a low cost provider gets stronger as you build up your business' cost effectiveness. I talked about evaluating your technological capabilities in the first point, because I believe that external factors are susceptible to changes, and these changes can come on suddenly, such as a price hike from raw material suppliers.
Jun 29, · Cost leadership means you are offering products or services for the lowest price on the market. Examples are easily found in big companies that have a . Companies that are successful in achieving Cost Leadership usually have: Access to the capital needed to invest in technology that will bring costs down. Very efficient logistics. A low-cost base (labor, materials, facilities), and a way of sustainably cutting costs below those of other competitors. Low cost leadership strategies enable an organization to develop standardized products in large volume at low cost, which give that organization a competitive edge over the competitors in the market.
Therefore, maintaining internal efficiency is the most important way of achieving cost effectiveness for your business. Ly is looking to specialise in Finance, and has an interest in exploring topics in entrepreneurship and strategies for small businesses.
Conversation Board We greatly appreciate any advice you can provide on this topic. Please contribute your insights on this topic so others can benefit.We know that adopting the low-cost leadership strategy is not viable for every business.
(article continues below) It is difficult to keep up with fierce competition, and you hope that you never get trapped in a dilemma between low costs and good quality. Cost leadership is different from price leadership. A company could be the lowest cost producer yet not offer the lowest-priced products or services.
A company could be the lowest cost producer yet not offer the lowest-priced products or services. Definition of cost leadership: Strategy used by businesses to create a low cost of operation within their niche.
The use of this strategy is primarily to gain an advantage over competitors by reducing operation costs below that of. Low cost leadership strategies enable an organization to develop standardized products in large volume at low cost, which give that organization a competitive edge over the competitors in the market.
Jun 29, · Cost leadership is one strategy where a company is the most competitively priced product on the market, meaning it is the cheapest. Cost leadership theory is a practice of lowering operating costs to be able to offer lower prices than one's competitors. Walmart and Payless are large companies that have had great success in.