Tuesday, January 18, 2011

circumstance is a cost leadership


Q. 3- Under what circumstance is a cost leadership. Differention and focus strategy.

Ans-
Cost leadership is a concept developed by Michael Porter, used in business strategy. It describes a way to establish the competitive advantage. Cost leadership means the lowest cost of operation in the industry. It’s often driven by company efficiency, size, scale, scope and cumulative experience. Industry can be low cost provider in situation where-
01.  The Industry product is essentially the same from seller to seller.
02.  Many buyers are price- sensitive and shoo for the lowest price.
03.  There are only a few way to achieve product differentiation that have much value to buyer.
04.  Most buyers use the product in the same ways and thus have common user requirements.
05.  Buyer cost switching from one seller to another is low or even zero.
Buyers are large and have significant power to negotiate pricing terms. 

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