Low cost leadership strategy

Low cost leadership means low overall costs.Low costs mean lower prices.This strategy aims to achieve low costs relative to competitors.The organization becomes the industry's lowest cost provider of products.It finds ways to drive costs out of business by reducing waste.This strategy appeals to a broad segment of price sensitive buyers.It elicits quick response.

Cost can be reduced in two ways:

1. Control cost drivers :Drive down the costs of value chain activities by doing a better job than competitors.
2. Revamp value chain:By-pass some cost producing activities.

a.Controlling cost drivers to reduce costs:Costs can be driven down in each activity segment of value chain through.

• Economies of scale :Activities are performed more cheaply at larger volumes.Fixed costs are spread out over grater volume.Standardization is practice.
• Experience curve :Experience helps reduced the cost of performing activities over time.
• Cost of key reduces :Costs of key resources can be reduced through strong bargaining power of buyer.Locational variable also reduce costs.
• Resource sharing :Combining of like activities and sharing of resources across sister units to reduce cost.
• Outsourcing :It involves purchasing some activities from outside specialists who can perform them cheaply.Vertical integration also reduce costs.
• Capacity utilization :Higher rates of capacity utilization reduce costs.
• First mover advantage :Being first in the market in introducing a new product provides cost advantage.
• Operating decision:They Can outperform competitors in controlling costs.

b.Revamping value chain to reduce costs :Costs can be driven by revamping value chain through :

• Shifting to E-business technology :Use of Internet for doing business can reduce costs.
• Direct marketing :Marketing products directly from producer to buyers reduces costs.channel costs are saved.
• Simplify product design :Simplified produced design reduced cost by simplifying the value chain.For example,using standardized parts and components.
• No-frills offers:Offering only basic product cuts costs.There are no multiple features and options.
• By pass high cost materials:New low cost materials reduce costs.
• Relocate facilities :Move plants closer to supplier or customer or both.
• Re engineering:Core business processes can be re engineered to cut out low value added activities.