Cost leadership strategies

If a firm wants to be able to compete on low prices, It will adjust its cost structure and aim for a cost leadership strategy. Two requirements need to be met: 1) Lowest cost position 2) Benefit proximity Having the lowest cost is not sufficient. At least the Threshhold features need to be fulfilled. Several levers help a firm to achieve a cost leadership position:

• Economies of scale
  • When a form increases its product output, it decreases production costs. In general any production process consists of fixed costs and variable (production volume related) costs. With more output the fixed costs are relatively lower and hence the advantage. High economies of scale exist in industries with high fixed costs and low variable costs.

• Economies of scope
  • Economies of scope are similar to economies of scale. Economies of scope result from the variety of products that can be sold using the some R&D, production and delivery assets.
• Factor costs
  • Factor costs, the costs of producing one item including labor and capital is a crucial cost driver.
• Learning effects
  • Learning effects can lower costs as a firm improves efficiency.

Part of Strategies for E-Business