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:
“The cost of a thing is the amount of what I will call life which is required to be exchanged for it, immediately or in the long run.”
—Henry David Thoreau (1817–1862)
“This I do know and can say to you: Our country is in more danger now than at any time since the Declaration of Independence. We don’t dare follow the Lindberghs, Wheelers and Nyes, casting suspicion, sowing discord around the leadership of Franklin D. Roosevelt. We don’t want revolution among ourselves.”
—Lyndon Baines Johnson (1908–1973)