Explain the Low Cost Leadership Strategies? - Business ...

Low-cost leadership strategies enable an organization to develop standardized products in large volume at low cost, which give that ... Home»ExplaintheLowCostLeadershipStrategies? Low-costleadershipstrategiesenableanorganizationtodevelopstandardizedproductsinlargevolumeatlowcost,whichgivethatorganizationacompetitiveedgeoverthecompetitorsinthemarket.Whenproductsaremanufacturedinbulk,thecostofproductionreduces,whichfacilitatestheorganizationtokeepthepricesofitsproductslowinthemarket. Lowpricescaptureabundantcustomersforpurchasingrelatedproductsandhencethesales&profitabilityoftheorganizationenhancesgreatly.Efficiencyisemphasizedincostleadershipstrategies.Infact,whenproductsaremanufacturedinabundance,theorganizationnotonlyacquirestheeconomiesofscalebutalsotheeffectsoftheexperiencecurve. Themanufacturingproductisusuallystandardizedonewhichismanufacturedatalowcost&isofferedtolargecustomersinthemarket.Inordertomaintaincostreductionstrategies,theorganizationshouldascertainthecostreductioninalldimensionsofthebusiness. Besidestheproductionstrategy,thereshouldalsobeaspecificdistributionstrategythatisassociatedwiththeproductionstrategy&dealswithextensivedistribution.ThePromotionalStrategyshouldalsobeinconsistentwithotherstrategiesbyhighlightingthefeaturesoftheproductsinacostreductivemanner. RequirementsforLowCostleadershipStrategies Therearecertainrequirementsthatmaketheapplicationofcostleadershipstrategiesquitesuccessful.Theseessentialfeaturesareasfollows. Theorganizationshouldpossessamassivemarketshare Accesstorawmaterialsiseffective Thelabor&othersignificantinputsarebeneficiallyaccessed Theorganizationmakessurethatthesecharacteristicsareavailabletoitotherwisethecompetitorscopythecostleadershipstrategies.Forproperimplementationoftheformulatedstrategies,theorganizationshouldalsotakeintoaccountthefollowingefforts. Engineeringskillsshouldbeeffectivelyprocessed Themanufacturingmethod&techniquefacilitatethesuitabledesigningofproducts Inexpensivecapitalshouldbeavailabletotheorganization Thelaborshouldbecloselysupervised Costsshouldbetightlycontrolled Quantitativetargetsprovideabasisforincentives Thereshouldbeanumberofprice-sensitivecustomersinthemarket Theproductdifferentiationcanbeachievedfromalimitednumberofways Customersinthemarketshouldnotbesensitivetothedifferencesinbrands Therearealotofcustomersinthemarketwithbargainingpower Thestrategiesshouldberelevanttothedifferentiation Thereareassociatingdiseconomiesoreconomiesofscale Themaximumcapacityoftheorganizationshouldbeutilized Therearelinkageswithdistributors&suppliers Thereiscostleadershipbenefitsassociatedwiththehorizontal,backward&forwardintegrationstrategies.Butdifferentiationshouldbeconsistentwiththecostleadership. Therelativeattractivenessofgenericstrategiesisaffectedbyanumberofcostelementslikediseconomiesoreconomiesofscaleaccomplished,theeffectsoflearning&experiencecurve,theassociationswithdistributors&suppliers,Theproportionofcapacityutilizationaccomplished,etc. Therearecertainlyotherfactorsthatshouldalsobeconsideredinmakingselectionamonganumberofalternativestrategieslike Thepotentialforknowledgesharing&cost-sharingwithintheorganization R&Dcostslinkedwiththedevelopmentofnewproductormodificationincurrentproduct Taxrates Laborcosts Shippingcosts Energycosts Costleadershipstrategiesaremuchprofitableforsuchkindoforganizationsthathaveamarketinwhichthereareprice-sensitivecustomers;thereisalargenumberofcustomerswithbargainingpower,thereisalimitednumberofmethodstoacquireproductdifferentiationorwhencustomersdonotconsiderthedifferencesamongbrands,etc. Thefundamentalideainthisregardisthatthecompetitorsareunderpricedandtherebyacquiresalargershareofthemarketwhichincreasesthesalesoftheorganizationandresultantlysomecompetitorsarekickedoutfromthemarket. Theorganizationthatsuccessfullyimplementsthecostleadershipstrategiesenjoysthefollowingbenefits. Lowoverheads Highefficiency Intoleranceofwaste Limitedperks Widespansofcontrol Highscreeningofbudgetrequests Rewardsassociatedwithcostcontainment Increasedparticipationofemployeesincostcontrolefforts Besidesthebenefits,therearecertainrisksthatareassociatedwithcostleadershipstrategieslikethechangesinthetechnologyintheindustryaffectstheeffectivenessofthestrategy,thestrategycanbeimitatedbythecompetitorswhichreducetheprofitsoftheorganization,orthecustomersmayswingtoothernonpricedifferentiatingfeatures,etc. AdvantagesofLow-CostProducer: Thepricefluctuationinthemarketinfluencesthecostofproductionofanyorganization.Theelasticityofdemandcanbetterexplainthisfact.Inacertainmarket,thedemandofparticularproductissensitivetoitspricewhichiscalledpricesensitivityofdemand. Inothersituations,thereisalimitednumberofwaystoaccomplishproductdifferentiationbyalteringthecost,features,price&qualityoftheproduct.Inothersituations,certainpeoplearebrandsensitiveandtheyexpresstheirpersonalityorchoicethroughcertainbrands. Inthecaseofbargainingpower,therearemorecustomers,suppliers&bargainingisassociatedwithlowpriceproductsascomparedtohighpriceproducts. RichardDanielsAuthoratBusinessStudyNotesHelloeveryone!ThisisRichardDaniels,afull-timepassionateresearcher&blogger.HeholdsaPh.D.degreeinEconomics.Helovestowriteabouteconomics,e-commerce,andbusiness-relatedtopicsforstudentstoassistthemintheirstudies.That'sthesolepurposeofBusinessStudyNotes.Lovemyefforts?Don'tforgettosharethisblog.RelatedPosts:TypesofVerticalIntegrationStrategyMarketingStrategyInternalExchangeRatesDefinition|HowitAffectUsDefineMarketingEnvironment.WhatisMicroand…CompetitiveAnalysisSharethis:ClicktoshareonFacebook(Opensinnewwindow)ClicktoshareonTwitter(Opensinnewwindow)MoreClicktoshareonReddit(Opensinnewwindow)ClicktoshareonTumblr(Opensinnewwindow)Likethis:LikeLoading...SearchtheSite ADVERTISEMENT BusinessStudyNotes BusinessStudyNotesisallaboutbusinessstudiesorbusinesseducation.VisitustofindherefreebusinessnotesofallthesubjectsofB.com,M.com,BBA&MBAonline. 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