How is cost leadership helpful in determining the success of a business organization? Explain with the help of an example?
Answers
Before talking about that 'How is cost leadership helpful in determining the success of a business organization' , we must clear this misconception that Cost leadership is not same as the Price Leadership.
Cost leadership helps a business by establishing competitive advantage. This advantage is obtained by lowering the cost of the operation. Cost leadership takes account of a company's efficiency, effectiveness, size, scale of production, scope of the product in the market and cumulative experience of the working staff.
Wal-Mart is a famous example of Cost Leadership. This organization has been pursuing an overall cost leadership strategy and making huge profits.
A cost leader has many advantages over his competitors. At the same pricing of a specific product, a cost leader will be more profitable and more successful than his competitor factor. The reason is that industries usually compete primarily on price neglecting the cost. So the cost leader usually wins because their profitability gives them more room for research and development which ultimately leads to more innovation.
Mainly the Cost leadership is the term used when company projects are quite cheapest manufacturer of the particular product as well as commodity in competition.
Cost leadership is the difficult to deploy strategy as it mainly involved with the management on reducing the cost as well as every level to remain more competitive.