Advantages Of Cost Leadership Strategy

Strategy Individual assignment
BUSA 7413A- STRATEGY
Cost leadership strategy
Bonginkosi Dlamini
Student no:375148

Table of Contents

1. Introduction …………………………………………………………………………………………………….3
2. Literature Review …………………………………………………………………………………………….3
3. Cost leadership Strategy ……………………………………………………………………………………4
4. Advantages of Cost Leadership Strategy ……………………………………………………….....6
5. Disadvantages of Cost Leadership …………………………………………………………………….6
6. Criticism of the cost Leadership Strategy …………………………………………………………..6
7. Conclusion …………………………………………………………………………………………… …………….7
8. Reference ………………………………………………………………………………………………….…………7

1. Introduction
Strategy is defined as the long-term direction of an organisation(Johnson

These goods and services that are produced at a lower cost are not inferior goods they are comparable to other competitors. In Cost leadership strategy, a firm becomes a low-cost producer in its industry, has a broad scope, services many industries and may even operate in industries that are related to it (Porter 1985). Porters stated that firms with high market share are the ones which are profitable and these firms become successful because they pursue the cost leadership strategy. Some researchers have done some work on the statement by Porter and have made differentiations between cost leadership that is low cost strategies and best cost strategies(Tanwar 2013). They concluded that low cost strategy is not able to provide sustainability in an organisation in the long term and cannot provide a competitive advantage. They mentioned that this what it does, it causes prices wars in firms. So, they believed that the best strategy is best cost strategy which entails providing the best value for a relative low price. The cost leadership strategy involves producing and selling volumes of standard and no frills products and underprizing everybody(Datta

Effect
This causes greater efficiency which is a competitive advantage.
2.3 Disadvantages of Cost Leadership Strategy
Its creates little customer loyalty and the firm may lose revenues if it lowers prices too much and it creates price wars.
3. Criticism of the cost leadership strategy
Datta has criticized the cost leadership strategy saying it is not a low-cost strategy but rather a differentiation strategy based on low cost price. Also, market share leaders do not compete based on low price but rather on differentiation. He further said differentiation strategy leads to acquiring market share which then in turn leads to low cost.
4. Conclusion
The cost strategy leader in any market gains competitive advantage because of producing at lowest cost. A firm with this strategy competes with any other firm and gets high profits because of high level of productivity and capacity utilization. Also, they have huge capital investment and have a huge market share. Few examples are Wal mart, Shoprite, Air Asia. These are success stories of Cost leadership strategy.

5.