So let’s take a closer look at each of them. Competing strategies base on cost leadership As the famous saying goes, “the price works wonders”. No wonder that competitive strategies can be successfully base on cost leadership. The tactic is that the company focuses on lowering the cost of delivering products or services to the customer, ensuring greater profitability, thereby increasing shareholder value, or investing in other areas of the company. When deciding on cost leadership, several factors should be taken into account and a number of questions should be answere, including.
The sieve model and the human capital model
what impact will the reuction of costs have on customers and employees of the company? – will this strategy be sustainable when scaling the business? – how will the company invest the additional profits? – is there a possibility of cheaper deliveries database compare to the competition? – will it be possible to maintain the position of the company supplying the product at the lowest cost, will competitors be able to quickly reach a similar price level? Porter’s Five Forces Analysis may be helpful in deciding whether a company should consider cost-leadership competitive strategies. It also nees to look at current suppliers and their costs, and the technologies and innovations that could limit the success of this strategy.
The opposite of the sieve model is the human capital model
Other areas to be verifie are the spee and efficiency of processes as well as the costs relate to human resources and the skills of the management team. A well-develope cost leadership strategy opens up several options for companies. One is to Business Lead increase your profit margin by keeping your costs current. Another is to resist a price increase when competitors are force to do so, or to lower the price to make the company more competitive. Yet another option is to invest profits in business diversification or automation to further reuce costs. The cost leadership strategy is one of the best strategies a company can employ to gain a competitive advantage and increase its market share.