FG Three Q1 From your experience can you give one example or

FG Three Q1. From your experience, can you give one example (or more) of well-known firms that were able to achieve larger market share by being a cost leader in its industry (not just by just following on mere cost-reduction initiatives)? Explain.

Solution

Cost leadership involves marketing a company as the cheapest source for a good or service. This means that it needs to minimize costs and pass the savings on to customers. By looking at examples of well known firms that have employed this strategy successfully, it can be seen how cost leadership can benefit a business.

Wal-Mart

Wal-Mart Stores has been successful using its strategy of everyday low prices to attract customers. The idea of everyday low prices is to offer products at a cheaper rate than competitors on a consistent basis, rather than relying on sales. Wal-Mart is able to achieve this due to its large scale and efficient supply chain. They source products from cheap domestic suppliers and from low-wage foreign markets. This allows the company to sell their items at low prices and to profit off thin margins at a high volume.

Southwest Airlines

The airline industry has typically been an industry where profits are hard to come by without charging high ticket prices. Southwest Airlines challenged this concept by marketing itself as a cost leader. Southwest attempts to offer the lowest prices possible by being more efficient than traditional airlines. They minimize the time that their planes spend on the tarmac in order to keep them flying and to keep profits up. They also offer little in the way of additional thrills to customers, but pass the cost savings on to them.