The document discusses the cost leadership strategy, which is an integrated approach to deliver goods or services at the lowest cost relative to competitors while maintaining acceptable quality for customers. It outlines the methods for achieving cost leadership, including demand forecasting, economies of scale, standardization, and the use of cost-saving technologies. Additionally, it highlights the benefits of this strategy, such as cost advantages and effective entry barriers, along with its limitations like the risk of customer focus dilution and the threat of technological shifts.

1. Cost Leadership Strategy /
Low-cost Business Strategy
Prof. (Dr.) Nitin Zaware
1Prof.(Dr.) Nitin Zaware

2. Cost Leadership / Low-Cost Business
Strategy:
The concept of generic strategies for gaining
competitive advantage has received considerable
attention recently in the business policy field.
Competitive Strategy, a modern classic of business
thinking, provides a strong conceptual foundation for
developing corporate strategy.
Generic competitive strategies are the marketing
strategy any of three strategies for marketing products
or services: cost leadership, differentiation, and focus.
The cost leadership strategy implies supplying
products in a more cost-effective way than competitors
do.
2Prof.(Dr.) Nitin Zaware

3. Cost Leadership / Low-cost Business Strategy:
A cost leadership strategy is an integrated set of
actions designed to produce or deliver goods or
services at the lowest cost, relative to that of
competitors, with features that are acceptable to
customers.
Achieving Cost Leadership :
Demand
Forecasting
Economies of
Scale
Standardization
Aiming at
Average
Customer
Use of Cost
Saving
Technologies
Differentiation
Withholding
3Prof.(Dr.) Nitin Zaware

4. Achieving Cost Leadership :
1) Demand Forecasting :
Accurate demand forecasting and high capacity utilization is
to be done to realize cost advantages.
2) Economies of Scale :
Economies of scale are to be attained. They lead to lower
per unit cost of product or service.
3) Standardization :
High level of standardization of products is needed. Uniform
service packages can be offered. Mass production
techniques are to be used. All this yields lower per unit
costs.
4Prof.(Dr.) Nitin Zaware

5. Achieving Cost Leadership :
4) Aiming at Average Customer :
Aiming at the average customer makes it possible to offer a
generalized set of utilities in a product /service to cover a
greater number of customers.
5) Use of Cost Saving Technologies :
Investments in cost-saving technologies can help a firm to
squeeze every extra paisa out of the cost, making the product
/service competitive in the market.
6) Differentiation Withholding :
Withholding differentiation till it becomes absolutely necessary
is another way to realize cost-based competitiveness.
5Prof.(Dr.) Nitin Zaware

6. Benefits of Cost Leadership Strategy:
Cost Advantage
Capacity to Absorb Increased Price
Price Reduction
Minimizes Threat
Effective Entry Barrier
6Prof.(Dr.) Nitin Zaware

7. Benefits of Cost Leadership Strategy:
1) Cost Advantage :
A firm is protected against the ill effects of competition if it has a
lower-cost structure for its products and services.
2) Capacity to Absorb Increased Price :
Powerful suppliers possess a higher bargaining power to
negotiate price increase for inputs.
3) Price Reduction :
Powerful buyers possess a higher bargaining power to effect
price reduction.
7Prof.(Dr.) Nitin Zaware

8. Benefits of Cost Leadership Strategy:
4) Minimizes Threat :
The threat of cheaper substitutes can be offset to some extent by
lowering prices.
5) Effective Entry Barrier :
Cost advantage acts as an effective entry barrier for potential
entrants who cannot offer the product / service at a lower price.
8Prof.(Dr.) Nitin Zaware

9. Limitation of Cost Leadership / Low-cost Business Strategy:
Possibility of Duplication of
Cost Reduction Technique
Dilution of Customer Focus
Reduction in Scope of Product
/ Service
Great Threat of Technological
Shifts
9Prof.(Dr.) Nitin Zaware

10. Limitation of Cost Leadership / Low-cost
Business Strategy:
1) Possibility of Duplication of Cost Reduction Technique :
The duplication of cost reduction techniques makes the position
of the cost leader vulnerable from competitive threats.
2) Dilution of Customer Focus :
Cost leadership is obviously not a market - friendly approach.
Severe cost reduction can dilute customer focus and limit
experimentation with product attributes.
10Prof.(Dr.) Nitin Zaware

11. Limitation of Cost Leadership / Low-cost
Business Strategy:
3) Reduction in Scope of Product / Service :
Depending on the industry structure, sometimes less efficient
producers may not choose to remain in the market owing to the
competitive dominance of the cost leader.
4) Great Threat of Technological Shifts :
Technological shifts are a great threat to a cost leader as these
may change the ground rules on which an industry operates.
11Prof.(Dr.) Nitin Zaware