EXT 504 - Low Cost Leadership (Porter)
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Transcript of EXT 504 - Low Cost Leadership (Porter)
- 1. EXT 504
Joanna Wiebe
(Summary of Paper on Porter)
Low Cost Leadership (Porter)
2. The critical focus in successfully implementing a cost-
leadership strategy is on efficiency and cost reduction.
3. Overview
Cost-leadership strategies are all about standardized products (no
differentiation) with cost/price as the key differentiator.
Understand cost-reduction strategies (e.g., building
efficient-scale facilities) and emphasize maintaining constant
efforts (or, as Porter would say, activities) to keep costs low in
order to create value for customers
Companies following cost leadership strategies cannot completely
ignore sources of differentiation that customers value when
producing standardised products.These include styling, minimal
levels of service, and product quality (Porter)
4. Negatives of Low-Cost Leadership Strategy
Risks with cost-leadership strategy:
Tech innovations by competitors eliminate low-cost advantage
Too much focus on process efficiency = less awareness on
environment & shifting customer preferences
Competitor imitation of low-cost + better value in other
areas
When competitors imitate (successfully), low-cost strategy must
shift to increase value to customers
Customer resistance to corresponding price increases
5. What Types of Companies Might Choose a Cost-Leadership
Strategy?
- Offer relatively standardized products
6. Have a minimum level of differentiation 7. Have a customer base that is price-sensitive 8. Have a willingness to lower their costs versus their competitors