This is all about behavior and psychology. Ans)Low Cost leadership strategy: The low-cost leadership … All rights reserved. There are two kinds of companies: Those that work to try to charge more and those that work to charge less. The lower they buy, the lower they sell to remain the best discount store on the planet. What are three activities or capabilities a firm/company should posses to support a low-cost leadership strategy? They became a cost leader through focus and starting small. In nearly every function of a business, there are ways to lower costs. In most cases firms end up in price wars. Sometimes, a price-leading company chooses to have the lowest prices at all costs and may be less profitable as a result. And you get specialization. Sell off such equipment or unnecessary components. Your position as a low cost provider gets stronger as you build up your business' cost effectiveness. a) Cost Leadership Strategy This generic strategy calls for being the low cost producer in an industry for a given level of quality. We talked a little bit about this in the Pricing Edition of Evergreen: There’s an amazing phenomenon in pricing, where an increase in price leads to an increase in sales because of a basic guideline that is programmed into all of us. It’s wonderfully polarizing, and a beautiful synopsis of the ethos of the cost leader. We’re so used to better products costing more, that when something costs more we assume that it is better. Your price tag already garners attention from consumers. Cost leadership, basically, refers to the lowest cost of operation in the industry. Ms. Ly is looking to specialise in Finance, and has an interest in exploring topics in entrepreneurship and strategies for small businesses. This idea (and a great example) came from Rob McGrorty of Webgility: An example is Evolve CFO, my old company. You get a whole bunch of little laboratories out there in which you can conduct experiments. See the extent of their dedication to the strategy and what tactics they employed: Walton, Bezos, Mandel, Carnegie, Rockefeller… any others? This is one of the primary levers in the oil industry, where companies battle for drilling rights to specific areas. Join here to receive the next Edition of Evergreen Business Weekly. Historically, you could also read up on Carnegie and Rockefeller, both of whom created empires by exploiting Economics of Scale in Steel and Oil production. This quote is from this great post by Jake Nielson. Not every suggestion is able to make it to the final edit, but every single suggestion is read and appreciated. Cost leadership firms usually keep the number of corporate staff low, have sustained access to capital and capital investments as well as process engineering skills. Just think about it. Immerse yourself in this topic and leave the week smarter than you started it! They shop there because it’s cheaper than their available alternatives. Commit to extreme cost excellence for the long run, or find another way to compete. They don’t have offices that customers visit and you don’t get on the phone with them to coordinate tour times or make notes. If there are 4 competitors in the space, there are likely to only be 2 over time. So you want to compete on price. You don't need to spend huge amounts of money on marketing to create more hype for your brand. There are also high price, high service leaders, like any national accounting or consulting firm. While this post assumes that a low-cost company is competing on price, which isn’t always true, it remains an interesting point. 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