Example Of Cost Leadership Strategies

Good Essays
In this essay we will examine the different kinds of strategies and its working with different business.
1) Cost Leadership- is a business strategy that mainly focuses on gaining advantage by reducing its costs below to those of its competitors. The main test for this strategy is to earn suitable profit by reducing costs. However, a firm pursuing cost leadership strategy focuses its efforts on keeping cost low. The main advantages of Cost leadership are:-
- Economies of Scale – firms continue to grow but at definite rate. For example, if the volume of production increases, the average cost per unit will fall till it can reach a definite optimal point.
- Diseconomies of scale- firms here grow at a very fast rate which will eventually increase
…show more content…
- Policy choices- products and services that the firms chose to sell should create a lower production cost.
Example of Cost leadership is Walmart Inc. has been successful in using this strategy to attract customers with its daily low prices. Its idea to offer merchandises at a cheaper rate than its competitors on a daily basis is a great advantage. Now, Wal-Mart is able to do such an exercise due to its large scale and efficient supply chain management. And, its source of products comes from cheaper domestic suppliers and from foreign markets. Company is able to generate a profit by selling items at low prices.
2) Product Differentiation- when a firm tries to increase its competitive advantage by maximizing the worth of their products or services relative to the value of other competitors of products or services. This increased value of the products or services give firms the opportunity sell at higher price than it would. This higher price can increase a firm’s revenues and generate competitive advantages.
It can simply be achieved be packaging of the goods in a inventive way by incorporating new functional features and creating new advertising campaign or other sales
…show more content…
Types of Corporate Diversification are:-
- Limited Corporate Diversification- A firm that implements this strategy where most of its business activities fall within a single industry and geographic market. Two kinds of firms are included in this corporate diversification category: single-business firms operating in 95 percent of their total sales in a single-product market.
For example a Subway restaurant chain which generates sales by selling healthy sandwiches and salads. Dominant business firms- generate 70 to 95 percent of their total sales in a single-product market. For example IBM, which provides mainframe computers but also supply motherboards to its

Related Documents

  • Decent Essays

    Advantages of Market Penetration Strategy Fast Growth - If your business and marketing objective is to enlarge your consumer base, then market penetration is the most effective way to act. When you offer better prices than your competitors, luring out their customers becomes easier that previously expected. Consequently, fast growth is heavily linked with low prices, and the more reasonable they are, the higher the impact will…

    • 1241 Words
    • 5 Pages
    Decent Essays
  • Decent Essays

    Moreover, price penetration occurs when companies charge a low price for their product in order to reach the largest amount of target market. Penetration pricing is considered an effective strategy for building brand image within customers and works especially well for increasing customer base. Competitive pricing is a key strategy and is used through Aldi. Aldi is able to offer quality products at low prices as it buys in large volumes. The fact that Aldi buys such large quantities of these products allows for the business to achieve an economies of scale and thus have an ability to charge their products for low prices.…

    • 223 Words
    • 1 Pages
    Decent Essays
  • Decent Essays

    The objective of penetration pricing is to increase market share or sales volume. One of the advantages of penetration pricing is that it is able to encourage brand switching. When a new product is priced low, it is able to lure customers away from the other competitors. Another advantage is that it discourages the entry of competitors. Since the product is priced at a relatively low price, if other competitors were to enter the market and price their product at a lower price or at the same price, they would have to sell more products to break even.…

    • 1973 Words
    • 8 Pages
    Decent Essays
  • Decent Essays

    Who will be benefited by strong dollar? Who will be hurt by strong dollar? Consumer sees lower prices on foreign products or services when dollar has risen. Obviously, strong dollar benefit the United State consumer. It is because foreign products become cheaper even more affordable when the dollar is strengthened.…

    • 1920 Words
    • 8 Pages
    Decent Essays
  • Decent Essays

    The company benefits from economies of scale in production and the profit margins increase, thus allowing companies to invest more money to promote the product as much as possible in order to maximize its growth rate. If the demand for a product is high then the price kept for it will also increase, while on the other hand price may also be reduced to attract customers for buying it. Product quality is improved, and advertising & promotional activities increase for expanding the market and to build brand preference. Maturity stage is the period when sales for the product are nearly highest but the growth rate is slowing down because of more competition in the market hence resulting in lower prices and reduced market share. Advertising and promotional expenditure will also reduce since brand awareness is strong.…

    • 1430 Words
    • 6 Pages
    Decent Essays
  • Decent Essays

    Tesco Research

    • 1998 Words
    • 8 Pages

    Also, Tesco has the finest range store (appendix 2.2) which is similar to price penetration, where they target high-income segments. They increase their price because they know the customer will buy, as they perceive the product to be of high quality. Tesco Everyday value (appendix 2.3) is a pricing strategy that they used to target lower class people. They decrease the price because they know lower income customers will be able to afford…

    • 1998 Words
    • 8 Pages
    Decent Essays
  • Decent Essays

    Costco’s business model refers to a protocol used to generate a high turnover of sales with high volumes of purchase by reducing the cost of products for only a limited stock or commodity. The model articulates on quality management through a move that aims at luring the attention of new members and retains existing customers. Costco uses the value of membership to create a bond with their customers. This protocol ensures a provision of a broad customer base and provides easiness of product selection. Moreover, the model promotes the business with a one on one reach to their customers unlike the models used by other company’s min advertising their products.…

    • 1072 Words
    • 5 Pages
    Decent Essays
  • Decent Essays

    Another important factor to consider are my competitors, gathering information about their prices, services, position in the market and the customers they attract makes it easy to compare and identify a suitable price for the products. Lastly the profit I intend to make determines the price charged for my products ( Jensen, 2013). The pricing strategy I consider most suitable is penetration pricing where prices are set low to gain market share and attract more customers once this is achieved prices are again raised. This strategy increases the rate of market recognition and prevents new competitors from entering the market in case of inadequate study of the trend. My rationale for this pricing strategy is that larger market share is gained rapidly later price is increased to ensure long term profitability (Smith, et al…

    • 727 Words
    • 3 Pages
    Decent Essays
  • Decent Essays

    Introduction Over all Cost Leadership is employed when a firm sets out to become the low cost producer in its industry for a given level of quality and entails a great attention to cost control. Above average returns are attainable because cost leaders can match their prices of their most efficient competitors, while fending off both powerful customers and suppliers. A company that focuses on there cost leadership strategy does not indicate that they will offer low prices than its rival but on the contrary profit can be made by selling the same products as others and earning bigger margin per unit or by undercutting rival’s pricing for a lower margin on a larger volume. In addition a cost leadership strategy is effectively implemented when a business designs, produces and markets comparable product more efficiently than its competitors. The firm may have access to raw materials or superior proprietary technology to lower costs.…

    • 2867 Words
    • 12 Pages
    Decent Essays
  • Decent Essays

    The satisfaction of the consumers makes them spread a good word of mouth which is a form of marketing. The company has financial resources that allow it to advertise its products through the media and various sources which convince more consumers to purchase from the company. These strengths are similar to Lowe’s company’s strengths. The company is the second largest retailer in the US market which increases this competitive position and advantage over the rest of the retailers. The size of the company allows it to avoid paying the high prices that are set by the wholesalers since it purchases stocks from the manufacturers and consequently reducing its operation cost and reducing the prices from the consumers and an increase in the profitability of the organization.…

    • 1452 Words
    • 6 Pages
    Decent Essays