Cost leadership

Cost leadership is a concept developed by Michael Porter, used in business strategy. It describes a way to establish the competitive advantage. Cost leadership, in basic words, means the lowest cost of operation in the industry.^[1] The cost leadership is often driven by company efficiency, size, scale, scope and cumulative experience (learning curve). A cost leadership strategy aims to exploit scale of production, well defined scope and other economies (e.g. a good purchasing approach), producing highly standardized products, using high technology. ^[2] In the last years more and more companies choose a strategic mix to achieve market leadership. This patterns consist in simultaneous cost leadership, superior customer service and product leadership. ^[3]

Cost leadership is different from price leadership. A company could be the lowest cost producer, yet not offer the lowest-priced products or services. If so, that company would have a higher than average profitability. However, cost leader companies do compete on price and are very effective at such a form of competition, having a low cost structure and management. ^[1]

References

1. ^ ^{a b} Michael J. Stahl, David W. Grigsby. "Strategic Management". Blackwell Publishing, 1997 ISBN 1-55786-650-3, 978-1-55786-650-9. http://books.google.com/books?id=LUqGrSHUfgAC&pg=PA141&dq=%22cost+leadership%22&as_brr=3&ie=ISO-8859-1#PPA141,M1. 
2. ^ Gavin C. Reid. "Small Business Enterprise: An Economic Analysis". Published by Routledge, 1993, ISBN 0-415-05681-0, 978-0-415-05681-6. http://books.google.com/books?id=hASe5Bx7sbMC&pg=PA119&dq=%22cost+leadership%22&as_brr=3&ie=ISO-8859-1#PPA120,M1. 
3. ^ William Harley Davidson. "Breakthrough". John Wiley and Sons, 2003, ISBN 0-471-45440-0, 978-0-471-45440-3. http://books.google.com/books?id=rsrKEnVnK7QC&pg=PA11&dq=%22cost+leadership%22&as_brr=3&ie=ISO-8859-1.