This is no easy task. the company that follows this strategy competes against the cost leader in the niche market where it has a cost advantage. It describes how companies get ahead by lowering their operating costs beneath those of others in the same business. Porter, author of Competitive Strategy, is widely known in business circles and is thought of as the father of modern business strategy theory.His central thesis is that businesses can create and sustain a competitive advantage in the marketplace by following one of two strategic choices: 1) cost leadership or 2) differentiation. In order to maintain the profit levels, the organization needs to have a high return on investment and the operating cost, which will ensure that the profit line does not fall below its competitors. Cost Leadership is an easy concept to understand, but it is not always easy to achieve. A. repeating a process until a task becomes easier B. hiring more experienced personnel C. spreading out a given expense or investment over a greater volume D. competing in an industry for a long time This is a strategy as described by the porter in which the firm has their source of getting the market shareby placing their products to the price-sensitive or cost-conscious customers. A focused cost leadership strategy requires , spreading out a given expense or investment over a greater volumeD. Since that time, some commentators have made a distinction between cost leadership, that is, low cost strategies, and best cost strategies. Experience effects are achieved by ____________. Which one of the following is NOT a key risk associated with a cost leadership oriented business strategy? Search 2,000+ accounting terms and topics. Low inventory levels are maintained, the inventory turnover is high, the plant lead time is less, the buyers are low­cost and match their value chain with the customer, they enable time-definite deliveries with low variability and orders are generally standardized. cost leadership strategy is easy to imitate in. In other words, it’s a company’s ability to maintain lower prices than its competitors by increasing productivity and efficiency, eliminating waste, or controlling costs. Cost leadership styles focus on resource organization. Cost leadership not only helps a firm to take down the competitors but also increase market share along with better profit margins. Cost strategy prerequisites normally relate to high technical capabilities and access to capital for the company to invest in technology and assure economies of scale. This strategy generally consists of an organisation attempting to gain a market share by appealing to cost-conscious or cost-restricted customers or consumers. Then, by achieving the lowest possible cost, the leader can place their team or organization into a position where the lowest price in the market is charged for needed goods or services. They can achieve this by offering the best and lowest prices on the products. The Cost Leadership strategy is exactly that – it involves being the leader in terms of cost in your industry or market. The primary objective of a firm aiming to attain cost leadership is to become the lowest cost producer in comparison to the competitors. cost leadership strategy is rare in mature industries when. They were able to reduce the time it takes to switch one of their plant lines from 300 minutes to 20 minutes. Maintenance for … That experience inspired the techies to analyze their production processes. A) efficiency B) innovation C) elegant design D) luxury Answer: A Explanation: A) A company with a cost leadership strategy is the pacesetter for prices in its competitive market. Cost leadership strategy refers to an integrated set of measures that are taken to produce goods and services with characteristics that are acceptable to … Furthermore, this strategy is believed to work best in the certain circumstances. Each of these companies came up with ideas to streamline operations and cut production costs in order to offer products to consumers at a lower price than their competitors. It is a competitive strategy designed to maximize profits by delivering the best possible product with the lowest possible production costs. Experience effects are achieved by _____. In order to get the lowest prices, a company typically will eschew elegant design, innovative products, and luxury in favor of efficiency. has reward systems based on quality rather than on the quantity of output. This strategy should not be confused with price leadership, which focuses on offering the lowest price to consumers. They claim that a low cost strategy is rarely able to provide a sustainable competitive advantage. They asked the Food and Drug Administration (FDA) to make the allergy drug Claritin available over the counter. and focusing on one of the three alternatives: 1.Cost leadership, 2.Differentiation, and 3.Focus. Establishing rigid cost controls. Instead, they claim a best cost strategy is preferred. This means they try to find ways to reduce costs in their company so they can offer a product at a lower price than their competitors. It is difficult to deploy the strategy because the management must constantly work on reducing cost at every level to remain competitive. 97) A cost leadership competitive strategy focuses on which of the following? This is usually achieved by large scale production which enables the firm to attain economies of scale or by innovating the production process. Because so many customers want to pay a lower price for goods and services, these companies can gain a wide audience and become the cost leader in the industry. A. , repeating a process until a task becomes easierB. Stephen Sanger, CEO, recently came up with an idea that helped his firm cut costs. focuses on maximizing the overall costs as much as possible. In other words, it’s a company’s ability to maintain lower prices than its competitors by increasing productivity and efficiency, eliminating waste, or … Instead, a company must maintain the quality of its products while lowering the costs of production through efficiency, size, scale, scope and the learning curve. This strategy is especially beneficial in a market where the price is an important factor. Some of the ways that firms acquire cost advantages are by improving process efficiencies, gaining unique access to a large source of lower cost materials, making optimal outsourcing and vertical integration decisions, or … economies and diseconomies of scale, low cost productive inputs and policy choices. In most cases firms end up in price wars. In the case of cost leadership, one advantage is that cost leaders’ emphasis on efficiency makes them well positioned to withstand price competition from rivals (Table 5.3 “Executing a Low-Cost Strategy”). They keep costs low by maintaining a division of labor that allows them to employ and train inexperienced staff instead of skilled cooks. Home » Accounting Dictionary » What is Cost Leadership? If approved, as an over-the-counter-drug, Claritin would reduce patient visits to the doctor and eliminated the need for prescriptions – two reimbursable expenses for which WellPoint would otherwise be responsible. 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