PORTER’S GENERIC STRATEGIES: COST LEADERSHIP

Question 1

What is cost leadership

Answer 1

a strategy of selling a low cost product aimed at a mess market.

Question 2

What are the requirements of cost leadership

Answer 2

Organisation is able to take advantage of economies of scale: technical, managerial, bulk buying

Focus on cost minimisation - materials, labour productivity, use of technology, distribution

Low profit margins = high number of sales

Products are of a reasonable quality

Barriers to entry, preventing new entrants from stealing market share

Question 3

What are the benefits of cost leadership

Answer 3

Appeals to price sensitive consumers

Effective in recessions (selling ‘inferior goods’)

Relatively unappealing to new entrants