business strategy In the field of management, strategic management involves the formulation and implementation of the major goals and initiatives taken by an organization's managers on behalf of stakeholders, based on consideration of resources and an assessmen ...

, cost leadership is establishing a

competitive advantage In business, a competitive advantage is an attribute that allows an organization to outperform its competitors. A competitive advantage may include access to natural resources, such as high-grade ores or a low-cost power source, highly skilled ...

by having the lowest cost of operation in the industry. Cost leadership is often driven by company efficiency, size, scale, scope and cumulative experience (

learning curve A learning curve is a graphical representation of the relationship between how proficient people are at a task and the amount of experience they have. Proficiency (measured on the vertical axis) usually increases with increased experience (the ...

). A ''cost leadership strategy'' aims to exploit scale of production, well-defined scope and other economies (e.g., a good

purchasing Purchasing is the process a business or organization uses to acquire goods or services to accomplish its goals. Although there are several organizations that attempt to set standards in the purchasing process, processes can vary greatly betwee ...

approach), producing highly standardized products, using advanced technology. In recent years, more and more companies have chosen a strategic mix to achieve market leadership. These patterns consist of simultaneous cost leadership, superior

customer service Customer service is the assistance and advice provided by a company to those people who buy or use its products or services. Each industry requires different levels of customer service, but in the end, the idea of a well-performed service is that ...

and product leadership. Walmart has succeeded across the world due to its cost leadership strategy. The company has cut down on excesses at every point of production and thus are able to provide the consumers with quality products at low prices. Cost leadership is different from price leadership. A company could be the lowest cost producer yet not offer the lowest-priced products or services. If so, that company would have a higher than average

profitability In economics, profit is the difference between the revenue that an economic entity has received from its outputs and the total cost of its inputs. It is equal to total revenue minus total cost, including both explicit and implicit costs. It i ...

. However, cost leader companies do compete on

price A price is the (usually not negative) quantity of payment or compensation given by one party to another in return for goods or services. In some situations, the price of production has a different name. If the product is a "good" in the ...

and are very effective at such a form of competition, having a low cost structure and management. The concept of cost leadership was developed by

Michael Porter Michael Eugene Porter (born May 23, 1947) is an American academic known for his theories on economics, business strategy, and social causes. He is the Bishop William Lawrence University Professor at Harvard Business School, and he was one of t ...

References

{{reflist Strategic management