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]

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