Maximizing Cost Leadership

Maximizing Cost Leadership

In business strategy, cost leadership relates to setting a firm’s cost of sale / production at an acceptable level relative to similar businesses in the same sector. It is not a cost reduction strategy per se. Cost leadership is usually driven by business size, scale, technological capability, scope, cumulative experience and/or profitability. The ultimate goal of cost leadership strategy is to identify and exploit opportunities to improve company value and profitability.

There are several approaches to formulating a cost leadership strategy. These include internal strategy and external strategy. Internal strategy occurs when company management identifies opportunities for cost savings through consolidation, streamlining or reorganization. While this may result in short-term cost savings, the long-term impact on company value and profitability may be adverse.

A cost leadership strategy that exploits opportunities in generics is referred to as generic cost reduction strategy. Generic cost reduction strategies provide flexibility, cost effectiveness and a faster return on investment. These strategies can be effective when they are adapted to address particular company needs, market conditions and financial constraints. Examples of generic strategies include financial cost reduction, fuel cost reduction, fixed asset cost reduction and production cost improvement. Examples of generic strategies that cannot effectively address or cost control challenges include dimensional cost reduction, fixed cost reduction and fixed asset cost reduction.

On the other hand, cost leadership strategy that relies on specific competitive advantages can be referred to as differentiation. The key to differentiation is identifying and exploiting companies’ competitive advantages, which can be done through the development of market share, market positioning or innovation. The development of specific brand names, service or product families or process is a powerful means for differentiation. A number of companies have used innovative brand name creation to achieve significant cost reductions. Some examples include Unilever (ampoo), Reckitt (colognes) and Coca-cola (fizzy drinks). Merck & White (Proactive) and K-Mart (perfume) have also made a name for themselves through consistent innovation and cost cutting, especially in health care cost management.

In addition, differentiation enables companies to maintain and regain market share lost to price competition or economic downturns. These companies have successfully reduced cost of production through innovation and sustained market share in their core markets. Examples of cost leadership competitors include Wal-mart and grocery store chains, which have maintained and improved market shares over the past few years. A Wal-mart example includes the adoption of supply chain and customer management strategies, which have reduced cost of manufacturing and delivering products to end users. A grocery store example includes adoption of automated order processing, optimized supply chain and increased focus on customer loyalty and customer satisfaction.

A generic strategy is often adopted to address cost issues in specific markets. Examples of generic strategies include Yum! Brands’ (Taco Bell, KFC, Subway) and Sherwin-Williams’ (Sterlingwood, Pringles) brands. However, the adoption of a generic strategy can be risky if it is not well aligned with business objectives.

What is a Product Development Strategy?

Product Development Strategy

A product development strategy is required for every company that wishes to venture into the product manufacturing business. In a product development strategy, a new product is developed to cater for the present market demand. The development process typically involves extensive research and financial investment and subsequent expansion of the business or product range. Product development strategies are designed and implemented to yield maximum returns to companies and minimize risks associated with new product development.

Developing a product development strategy requires knowledge of market penetration strategies that have been successfully implemented by other companies in the same industry. It is also important to study the market trends and to adapt existing distribution strategies to bring about higher product sales. Some companies are able to increase market penetration for their products through successful advertising and distribution programs. Other companies rely on traditional distribution and marketing techniques to expand their customer base and improve sales.

Each product development strategy has two components. The first component focuses on market penetration strategy, while the second component focuses on distribution efforts. While market penetration strategy is typically developed by a product development company, distribution efforts are usually developed by the company manufacturing the product. A distribution plan is developed to enable the manufacturer to distribute the new product either across the current business structure or to establish a new business structure. Usually, distribution efforts involve purchasing of goods from the manufacturer and the execution of store delivery activities.

A diversification product diversification strategy is used to protect the parent company s assets in case the product fails to meet expected sales levels. Most diversification strategies are implemented during initial public offering (IPO) round for highly profitable businesses. The second component of a diversification product diversification strategy is product diversification, which aims at creating multiple streams of income from a single product. This strategy has a number of advantages. These advantages include reduced operational and training costs, faster growth, increased cash flow, competitive advantage, and control over variable costs.

This strategy is used when developing new products. In such a situation, one would ideally want to develop a new product that will succeed against existing products in the same targeted markets. This strategy enables one to protect the financial investments made in developing the product. Diversification strategy is also necessary for companies that have an established brand. A brand is developed when the company has built a good reputation in the market, and a strong customer and supplier network.

This strategy is used when the business requires product enhancements. It can be used to protect the assets of the parent company if the new product fails to meet expected performance levels. This strategy allows one to increase the profitability of the product development cycle and reduce the risks associated with investing in such projects. In order to develop a successful DSSS, the product development company should first have a good understanding of their customer’s needs, which will help them tailor the design, development, and production process to meet these needs effectively.