Cost Leadership Strategy Definition, Benefits, & Examples

Cost Leadership Strategy

There is two similar quality of products launched in the market but their prices are different. People will generally buy an item that is available at a lower price unless he has a money plant which gives him money.

Cost leadership helps a marketer you to beat their competitors in price-based marketing.

Let’s drive in.

What is Cost Leadership?

Cost leadership is a marketing strategy for marketers to establish their company in the market by giving the lowest cost of operation in the industry.

It typically works in a market when the price is the most important factor. A company that has been taken cost leadership as a marketing strategy has to produce the lowest cost products as possible for being a step further than the competitors.

The cost of raw materials must be low as the cost of the raw materials decides the products final price. Companies must make efficient products to achieve cost leadership.

The difference between Cost Leadership and Price Leadership:

Cost leadership and leadership, the price leadership, are not the same.

The money required to bring a product in the market refers to the cost while the consumer pays the money to buy the product refers to price.

Some large online companies like amazon sell their products at a meager price (at a loss)than their competitors to maintain their market. These companies can be called as price leaders not cost leaders.

In the other hand companies which maintain lower operational cost to bring the product in the market and sell the products in high margin can be called as a cost leader, not price leaders.

The main aim of a cost leading company is to decrease the cost, not the price.

How one can achieve Cost Leadership Strategy:

It is not very tough to achieve cost leadership strategy. A unique and successful cost leadership strategy helps to beat target competitors.

So it is the key to market success. Marketers have to produce large no of products so it will ultimately lower the unitary cost.

Here are some ways to achieve the cost leadership strategy,

Cost Leadership Strategy
Cost Leadership Strategy

Increasing production scale:

Large number of production decreases the ultimate cost of the product.

‘High production low cost’

Technology:

Creating better and innovative technologies and methods can help a company to be a cost leader. It will help to reduce the time of manufacturing products per hour and also the number of employees.

You can also sell the patent of you machines and earn profit from them.

Raw materials:

If marketers can get raw materials at a lower price then they will earn more profit than their competitors.

The low price of the raw material will ultimately reduce the cost of the product and beat the competitors In the market.

Operating efficiency:

Costs can be greatly reduced by the products operating in lesser time. By doing a task in lesser time it will increase the number of manufacturing products per day.

So it helps the company to earn more profit. A company makes 100 machines per day but if the company makes 200 machines per day it will reduce the operational cost.

Research competitors:

Marketers have to research thoroughly their target customers (competitor’s technology, the way of production of goods and services, the cost in which they buy the raw materials, etc.).

By doing this a company can be able to supply products at a lesser cost than their competitors.

Benefits of Cost Leadership Strategy:

(1) Reduce cost: knowing the cost leadership strategy will help a marketer to reduce the cost of a product than the competitors.

(2) Earn more profit: By reducing production costs than competitors it will help a company to earn more profit than the competitors.

(3) Minimize threat: Cost leadership strategy helps to minimize the threats of marketing filed.

Examples of Cost Leadership Strategy:

(1) Aldi: Aldi has reduced excesses at every point in making his products.so it will be able to give products at very low cost.

(2) McDonald’s’: McDonald’s’ employees inexperienced staff rather than skilled cooks. By this, they save huge amounts of costs from their employees’ salaries.

(3) Flat fee realtor services: Many realtors take commissions to sell a house more than 5or6%.It is a very high percentage.

This means$300000 can cost up to $30000in commissions. But these farms reduce the commission and take only $3000 from$300000.

Limitations of Cost Leadership Strategy:

(1) Technological shifts: The changes of new technologies are a great threat to a cost leader.

(2) Duplication of cost reduction technique: Marketers can copy your cost reduction strategies/ techniques.

(3) Not focused on customers’ basic needs: Cost leadership strategy not focused on the needs and demands of customers.

Conclusion:

Hope this helps you understand that what it takes to be cost marketing a business and how to grow it.

What did you think of this? Do I miss something? Let us know if you want to add something to the list.

Cost Leadership Strategy FAQ:

What is Cost Leadership Strategy?

Cost leadership is a marketing strategy for marketers to establish their company in the market by giving the lowest cost of operation in the industry.

What are the examples of Cost Leadership Strategy?

Here are some examples of Cost Leadership Strategy –
(1) Aldi, (2) McDonald’s’, and (3) Flat fee realtor services, etc.

3 Replies to “Cost Leadership Strategy Definition, Benefits, & Examples

  1. excellent post, very informative. I ponder why the opposite specialists of this sector don’t realize this. You should proceed your writing. I am sure, you’ve a great readers’ base already!

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