Notably, this type of strategy is used by firms which aim to achieve the lowest cost of operation in their organization. Cost leadership is achievable via specific ways, for instance through creating and improving economies of scale or through tactical innovations ("Why Tesla Follows a Product Differentiation Strategy and Aldi one of Cost Leadership-And not the Other Way Around!"). For example, Aldi can offer low prices than other food stores as it observes some policies that drive towards providing more economical rates. One of its plans is offering more generic products; also its international scale gives the food store large economies in the purchase and a lower cost of sales. However, most firms have an opposing view on adopting a cost leadership since the strategy might end up causing the firms to go bankrupt ("Strategies To Fight To Low-Cost Rivals"). For companies to be able to succeed while using this strategy, they need to emphasis on specific consumer segments. They also need a product that has more benefits than what other firms deliver.
In contrary, Aldi uses cost leadership strategy, and it works for as they can sell more than their competitors and they also offer products of high quality ("Strategies To Fight To Low-Cost Rivals"). The article also indicates that most billionaires were able to make money by creating low-cost businesses. Notably, if consumers purchase a product due to its low price, it is hard for the customer to move to another firm.
According to Chacar 2018, businesses that adopt this strategy have unique features that the consumers are willing to pay extra money to acquire. Firms can achieve this strategy through provisional of outstanding services or provide products with unique designs. For instance, Tesla can make sales as their products are created using a single image and model. Also, Tesla's cares were the first to offer a semi-autonomous driving. Hence the buyers are always willing to pay extra to enjoy the unique services.
According to Kumar 2018, differentiation strategy can be used as a solution to succeed in a market where other firms apply the cost leadership strategy. The author states that instead of firms engaging in a price war they cannot win, they can try to distinguish their products and services and provide products that consumers are willing to pay extra, i.e., products with unique characteristics. The author indicates that companies should engage in some approaches like designing cool products, for instance, Apple, offering unique product mix. Also, sell experiences and brand their products to be able to compete with a cost leadership style. Another example is the Bang and Olufsen manufacturers they can compete with low-cost electronics due to their capabilities to design creatively. Most view the strategies view Aldi and Tesla to use a similar, but according to both authors, the approaches are different.
Notably, companies that do not do well using low-cost businesses and traditional, they should try other options ("Strategies To Fight To Low-Cost Rivals"). For instance, they can shift from selling merchandises and consider selling solutions. In other words, the firms can convert themselves into low-cost players.
Type of Consumers
In conclusion, the two strategies will always attract different consumers. As consumers are of two types, those that buy due to low prices and those who purchase due to the value of the product. Hence they will always be a market for products from firms using either of the strategies.
"Strategies To Fight To Low-Cost Rivals." Havard Business Review,2018, https://hbr.org/2006/12/strategies-to-fight-low-cost-rivals. Accessed 1 July 2018.
"Why Tesla Follows a Product Differentiation Strategy and Aldi one of Cost Leadership-And not the Other Way Around!" https://www.linkedin.com/pulse/why-tesla-follows-product-differentiation-strategy-aldi-aya-chacar. Accessed 1 July 2018.
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