As part of business strategy, many companies use a lower cost strategy to lead their businesses. When a company applies the lower cost strategy, you can simply call that company is following cost leadership strategy.
Some of the most successful companies following the lower cost strategy include; Wal-mart, Alamo Rent A-Car, Southwest Airlines, Timex ….and many others; seek primarily to achieve greater market share
Achieving greater market share or mass marketing while at the same time reducing costs, cost leader companies practically acquire hands-on cost reduction experiences or specialize achieving economies of scale to generate satisfactory profit by charging a lower price compared to its competitors
Four major reasons to follow cost leadership business strategy
- Supplying products at a lower price enable these companies control the greater market share
- Holding greater market share leads to have high bargaining power relative to its suppliers so that they purchase in bulk
- They Win barriers to entry as few can only supply products at lower price
- Continual hands-on cost reduction experience and achieving economies of scale continually enable them to earn above average returns on investment