Cost leadership as a strategy of the successful company Essay

Cost leadership is an effective business-level strategy to the extent that a firm offers low prices, provides satisfactory quality, and attracts enough customers to be profitable. The low cost leader in an industry has built and maintains plant, equipment, labour cost and working practices that deliver the lowest costs in that industry. Additionally, the firm with the lowest costs has a clear and possible sustainable advantage amongst its rivals. A firm that is positioned as a low cost leader, achieves its position by shaving cost off every element of the value chain- the strategy comes from attention to detail. In order to be successful as a low cost leader, a firm must not only build a competitive advantage alone but the key to remaining successful is building a sustainable competitive advantage. Hence, in the long run, a company gains a sustainable competitive advantage through its ability to develop a set of core competencies that enable it to serve its selected target customers better than its rivals.
Cost leaders tend to share some important characteristics. The ability to charge low prices and still make a profit is challenging. Cost leaders manage to do so by emphasizing competence. As part of the effort to be efficient, most cost leaders spend little on advertising, market research, and research and development. For example, Walmart, which has used a cost leadership strategy to become the largest company in the world has obtained its distinctive competitive advantage typically from economies of scale. Thus, they are able to weaken their rivals with their price. Furthermore, the size of Walmart allows the company to gain tremendous bargaining power from its suppliers. Since Walmart holds so much of the market share, they offer a lot of business to manufacturers and wholesalers, and thus the firm passes some of these savings to customers in the form of reduced prices in its stores. Also, Walmart benefits from an efficient supply chain management, where the company removed a few of its chain links and laisse directly with manufactures to cut cost.
Another essential point on maintaining a low cost competitive advantage is developing a strategy that is based on simplicity and efficiency. For instance, Aldi's grocery store is relatively recognized for supplying top quality at incredible low price. This efficiency is cemented by eliminating waste and therefore using less labour, materials, space and time. Furthermore, Aldi's being one of the most successful retailer in Germany offer less expensive items, the company manufactures its products without the various factors - packaging, transportation, stocking etcthus they are able to keep costs low and pass on the benefit to shoppers. This occurs because, more than 90% of its goods are own-label, packaging are designed to fit the maximum amount onto shelves and pallets so no space in a store or lorry is wasted. As a result of this strategic approach Aldi's is able to uphold its low cost position by a direct approach which involves removing all frills and extras from the basic product or service.