Advantages and Disadvantages of Cost Leadership 15 January, - Each generic strategy offers advantages that firms can potentially leverage to enhance their success as well as disadvantages that may undermine their success. Beyond existing competitors, a cost leadership strategy also creates benefits relative to potential new entrants. Thus a cost leadership strategy helps create barriers to entry that protect the firm—and its existing rivals—from new competition.
Having the lowest price can be advantageous to your marketing effort, but the strategy also has several disadvantages.
Credibility In the years prior to the prevalent use of the Internet in e-commerce, being the everyday low-price leader meant being the price leader in your geographic region. The Internet now offers consumers the ability to check your pricing against hundreds or thousands of online retailers.
Your company stands to lose credibility among consumers if your everyday low prices are not comparable to pricing found on the Internet, according to the Knowledge Emory website.
Discounts The promise of everyday low pricing can work against you when it comes to discounts and pricing specials. Because your company strives to provide the lowest prices at all times, you may not have sufficient profit margin to offer occasional promotional discounts. Pricing discounts are marketing vehicles that can be used to improve sales, according to website NetMBA.
When you have conditioned customers to expect everyday low prices from your company, offering price discounts can seem contradictory; it may cause customers to question whether or not you actually have the lowest price.
Perception of Quality Competition-based pricing is a model that relies on the pricing habits of your competition. It does not take into account product cost, your profit margin or product demand. In some cases, you may be forced to sell product at a loss to remain competitive.
Always being the lowest-priced supplier sometimes creates the perception that your product quality is lower than that of the competition, according to Karl Heil, writing on the Reference for Business website. Some consumers might assume that counterfeit or reconditioned products are the means by which you maintain your low prices.
Customer Service An everyday low-price offering reduces your profit margin and forces you to operate on a low budget.
If you cannot afford to hire the number of sales associates needed to maintain a high level of customer service, then everyday low pricing may not be enough to maintain repeat business.A cost-leadership strategy is a broad approach to business whereby a significant aspect of a company's strategy is an effort to operate as the lowest-cost business in its industry.
Advantages and Disadvantages of Cost Leadership. 15 January, - In the case of cost leadership In some settings, the need for high sales volume is a critical disadvantage of a cost leadership strategy. Highly fragmented markets and markets that involve a lot of brand loyalty may not offer much of an opportunity to attract a.
We would like to show you a description here but the site won’t allow us. Disadvantages of Cost-leadership- technological advancement makes the low cost advantage outdated. - imitation ability of competitors.
cost leadership disadvantages In an attempt to maintain a low cost position, a firm might reduce costs in critical areas such as customer service. These cost reductions have the potential of driving away some customers who seek better customer service.
If cost-leadership strategies can be implemented by numerous firms in an industry, or if no firms face a cost disadvantage in imitating a cost-leadership strategy, then being a cost leader does not generate a sustained competitive advantage for a firm.