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. 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. 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.
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.
Famous quotes containing the words cost and/or leadership:
“I knew that the wall was the main thing in Quebec, and had cost a great deal of money.... In fact, these are the only remarkable walls we have in North America, though we have a good deal of Virginia fence, it is true.”
—Henry David Thoreau (1817–1862)
“Nature, we are starting to realize, is every bit as important as nurture. Genetic influences, brain chemistry, and neurological development contribute strongly to who we are as children and what we become as adults. For example, tendencies to excessive worrying or timidity, leadership qualities, risk taking, obedience to authority, all appear to have a constitutional aspect.”
—Stanley Turecki (20th century)