By Kimberlee Leonard Updated March 11, 2019
As a business owner, you need to consider the various marketing strategies that will have the greatest impact on your revenues and profits. Cost leadership is one strategy where a company is the most competitively priced product on the market, meaning it is the cheapest. You see examples of cost leadership as a strategic marketing priority in many big corporations such as Walmart, McDonald's and Southwest Airlines. While it is difficult for many small businesses to compete with conglomerates on cost leadership, there are examples you find at a local level.
Flat Fee Realtor Services
Selling a home is a costly transaction. Realtors are allowed to legally charge up to six percent in commission on a transaction. This amount is usually split between the buyer's agent and seller's agent but all paid for by the seller. This means a $500,000 could cost up to $30,000 in commissions.
While many homeowners negotiate this fee down to five or four percent, this is still a high number. This is where flat fee brokers have penetrated the market using cost leadership as an effective strategy to find new clients. These firms advertise that a seller will not pay more than $3,000 for selling their home with included services such as listing their home and completing all necessary legal disclosures. This helps sellers save money, avoid the hassle of selling by owner and still get the help to properly market their home.
Cookie-Cutter Home Renovations
Contractors can cost a lot of money. Both supplies and labor are costly and there is additional overhead when contractors must consider the insurance and licensing components of the business. But cookie-cutter renovation companies have made a mark in the home renovation market. Most cookie-cutter renovators specialize in one aspect of home renovation.
Some are kitchen specialists while other are bathroom specialists. There are even those who are renovating sheds or garages to make for additional entertaining space.
Specializing helps them work with wholesale distributors to get the best pricing on the standard package they sell to clients. Choices are limited with these renovators, so don't expect customization. But because they are getting the same cabinets or countertops over and over again, they are able to get deeper discounts on those products. The result is a homeowner with a newly updated kitchen for less money.
Oil Change Services
There are certainly big companies such as Jiffy Lube that are cost leaders for oil changes. However, a smaller mechanic's shop or even a car dealership might offer low-cost oil changes to get more people in the business door. A mechanic's shop might use this as a way to get clients in and to build relationships with them, hoping the clients will later use the mechanic for higher-end jobs such as a new transmission. A car dealership would have the same goal of getting prospects who are aware of the dealership's service department and to then develop a relationship with customers, who will eventually be in the market for a new car.
FAQs
Perhaps the most famous cost leader is Walmart, which has used a cost leadership strategy to become the largest company in the world. The firm's advertising slogans such as “Always Low Prices” and “Save Money. Live Better” communicate Walmart's emphasis on price slashing to potential customers.
Does McDonald's use cost leadership strategy? ›
McDonald Restaurant
The brand's cost leadership strategy allows them to keep production cost low, hire few managers, recruit and train fresh labor and offer affordable prices to its customers.
Does Amazon use cost leadership strategy? ›
Amazon's generic strategy is cost leadership in a broad market segmentation.
What is the cost leadership strategy of Dunkin Donuts? ›
The competitive strategy of Dunkin Donuts can be characterised as cost leadership (Gillespie and Swan, 2021). This brand offers products with the best possible quality in a certain price range. In combination with a wide range of beverages and snacks, this attracts consumers interested in variety and savings.
What is an example of a cost leadership strategy IKEA? ›
IKEA outsources the production of its goods to low-wage nations, like many other businesses do, this cost leadership strategy aims to ultimately keep costs as low as possible. Interestingly, in addition to its advantage in cost leadership, IKEA also employs a diversification strategy to some degree.
Does Netflix have a cost leadership strategy? ›
Netflix's strategy aligns more with a best-cost strategy. This strategy aims to provide a product or service with a balance of both low cost and differentiation. Netflix offers a wide range of content at competitive subscription prices while also providing unique and high-quality original content.
What is a simple example of cost leadership strategy? ›
A firm following a cost leadership strategy offers products or services with acceptable quality and features to a broad set of customers at a low price (Table 6.2). Super Shoes, for example, sells name-brand shoes at inexpensive prices. Little Debbie snack cakes offer another example.
Does Uber use cost leadership strategy? ›
As outlined in Table 1, Uber's strategy contains elements of Cost Leadership and Differentiation.
Is an example of a company with a cost leadership strategy? ›
Examples of companies that have successfully implemented a focused cost leadership strategy include Walmart in the retail industry, Southwest Airlines in the airline industry, and Aldi in the grocery industry.
Does Walmart use cost leadership strategy? ›
This strategy can be highly successful; however it is very difficult to employ as it requires minimising costs and passing the savings to the customers. Walmart is one of the salient examples of a successful cost leadership strategy.
1) Starbucks: Starbucks focuses on premium pricing and differentiation through quality and customer experience rather than cost leadership. 2) Amazon: Amazon utilizes a broad differentiation strategy with a focus on innovation, customer service, and a wide product range rather than a cost-leadership approach.
How does Coca-Cola use cost leadership strategy? ›
Cost leadership Focusing on a cost efficiency mindset
Managing cost effectively is an essential part of our long-term strategy for market leadership and sustainable growth. We aim to make the business more competitive by creating a lean organisation that's able to exploit efficiencies across our markets.
Is Zara a cost leadership strategy? ›
Strategy Goals
Zara's generic strategy is cost leadership.
Does Adidas use cost leadership strategy? ›
Cost Leadership: While some competitors may offer lower prices, Adidas employs strategic manufacturing practices to ensure their products remain competitively priced. This allows them to appeal to a wider range of consumers.
Does Nestle use cost leadership strategy? ›
Nestlé uses significant differentiate strategy for cost leadership strategy. Nestlé follows less price transparency and significant differentiate of products in business to enhance the productivity and profit of the organization.
What leadership style is used in McDonald's? ›
However, there are some very successful companies who use the autocratic style to great effect, with McDonalds being one of them. In this case, McDonalds don't ask for suggestions or input from employees on any decisions the business makes or when it comes to changing working practices.
What strategy does McDonald's use? ›
Standardization Strategy — McDonald's maintains a consistent brand image globally by offering identical food products such as McFlurry, McNuggets, McChicken, Happy Meal, and Filet-O-Fish worldwide. This strategy not only reinforces the company's image but also maximizes operational efficiency and cost savings.
Which of the following is an example of a cost leadership strategy? ›
Real-life examples of successful cost leadership strategies include Walmart, which has achieved significant cost savings through its efficient supply chain management and logistics, and Xiaomi, which has become a leading smartphone brand by offering high-quality products at affordable prices.
Does KFC use cost leadership strategy? ›
KFC tends to be increasing the scale of business and development in its international market by utilizing both the cost leadership and differentiation strategy not to mention its corporate social responsibility which has enabled them to garner sustainability (Porter, 1998).
