Cost leadership strategy (SMUnit 3 of 1-4)
What are the characteristics of a firm that is successfully pursuing a cost leadership strategy? Your response should be at least 200 words in length. All sources used, including the textbook, must be referenced; paraphrased and quoted material must have accompanying citations
Learning Objectives
Upon completion of this unit, students should be able to:
1. Evaluate strategies as they are developed and deployed.
2. Discuss the process of strategic analysis.
3. Determine the steps involved in choosing a strategy.
Written Lecture
Choosing a Strategy
The analysis of the internal and external environment provides suggestions of possible strategic paths forward for the company. Still, a choice is required, and ultimately the CEO bears responsibility for this choice. What options are available? It is often helpful to think of strategy in terms of general, specific, long term, and short term, components.
General and Specific
One of the first decisions regarding strategy relates to the overall type of product that you will offer. For example, will you offer an expensive, relatively rare and valuable product, or will you offer an inexpensive commodity? The differences between the types of possible product offerings are easy to visualize. A BMW or a Mercedes is an example of a high-end automobile. Such a product would be quite a contrast to the low-priced, widely available original VW Beetle when it was first released to the market. Examples of other high-end and low-end product contrasts abound, such as IBM "clone" personal computers versus "ultrabook" notebook computers, or the Swatch watch versus the Rolex. Why should the type or level of product be of a strategic concern? The type of product offered has strategic implications as it outlines how the organization will compete, how the organization is structured, and how the strategic plan is implemented.
A high-priced product line may seem to be a rather difficult way for a company to compete. Economic theory would lead most to believe that higher prices would naturally appear to lead to lower demand. While this may be true in a general sense, a company that offers high-end products seeks to differentiate itself from its competitors. It does so by adding unique features to the product, advertising in such a way to reinforce the high-end image, and finally, supporting the product with high value services. Regardless of the price, expensive products do sell when customers begin to feel that they "must" have the product, and that no substitute will do. As a practical example, notice how many people are using expensive smartphones and high-end music players? There are plusses and minuses for such a strategy. The obvious merits are the additional profit margins that are made available at each sale. The downside is the cost of supporting such products in terms of marketing, support, and possibly capital expense.
COST LEADERSHIP STRATEGY
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Cost leadership strategy is an initiative applied by businesses to lower production and operational costs. This strategy is used by companies that want to gain a competitive advantage over other firms in the same industry by reducing economic expenses. In this paper, I will highlight the characteristics of a firm that successfully utilize cost leadership strategies.Companies need to have distinct features in order to successfully implement cost leadership strategies. The type of product influences the cost strategy in terms of whether the product is valuable or inexpensive will determine if the organization will register profits or losses. Product cost is another characteristic that will impact company strategies. The economic theory states that if a product is expensive, its demand will decline. However, if expensive products have unique features accompanied with high-end services, its demand will rise among consumers (Hitt, Ireland & Hoskisson, 2007). For example, people would rather purchase an expensive smart p...