Cost Leadership Strategy Advantages And Disadvantages Pdf
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Cost leadership styles focus on resource organization. The goal is to produce goods or services at the lowest possible cost by organizing every potential resource around the current production methods.
- Porter's generic strategies
- features of cost leadership strategy
- Consultants Review Magazine
- 14 Advantages and Disadvantages of Cost Leadership Styles
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. In many settings, cost leaders attract a large market share because a large portion of potential customers find paying low prices for goods and services of acceptable quality to be very appealing. This is certainly true for Walmart, for example.
Porter's generic strategies
Any and all contributions to this research made by my coworkers have been described and recognized herein. Signature of author: Michael Date of signature: April 20, License of Copyright to Academic Paper The author of the academic paper fully understand theprovisions promulgated by Jinan University for reservations and use of the academic papers, and is entitled to retain and submit the copy and disk of the paper to the relevant national departments or agencies concerned and allow access to them.
I hereby authorizeJinan University to incorporate the academic paper in whole or in part into the relevant database for retrieval and to save and compile the academic paper by photocopy, microprint or scan. Airline industry contributes to the economic growth of a country. The International Air Transport Association surveyed that the growth rate of the airline industry is about 6.
The author chooses AirAsia as the study object for learning low-cost leadership that developed by Michael E. The main idea of the paper is about the industry analysis applied to generic strategies thus generate competitive advantages. AirAsia is Asia's largest low-fare, no-frills airline and a pioneer of low-cost travel in Asia. AirAsia group operates scheduled domestic and international flights to over 65 destinations spanning 18 countries. Author thinks that AirAsia is the best company to learn the low-cost leadership strategy.
The company strictly on low cost, breaks the travel norm, innovate the operation process, and become a strong leader in Asia supported by the performance data. Keywords: AirAsia, competitive strategy, low-cost leadership strategy, competitive advantage, low-cost carrier, Asia airline industry.
I English Abstract …………………………………………………….. II Table of Contents …………………………………………………… V 1 Introduction ………………………………………………………….. Airline industry boosts all the countries in growth of the economy, tourism, and international business investment.
It has made a lot of changes of people lifestyle to travel and the way of doing business by reducing travel time consuming and allow people to visit different places or countries. The airline industry has evolved extremely since the last decades into a multifaceted and fast growing industry drifted by the economic growth, travel and tourism divisions, in accompany with the significance increasing passengers from numerous places www.
In the few decades ago, low cost carriers or no frills carriers such as EasyJet and South Western Airlines have appeared with the great competitive marketing strategy to battle with the existing giant market leader such as British Airways and United Airlines Buhalis, This was further confirmed by Driver , that in the challenging situation of the airline industry that was expanding very rapidly; 2 fare structures, provision of routes, simplified ticketing system, improved pre- and post-flight aspects of travel, distribution channels and promotional activities of an airline were among its thriving factor to success.
Michael Porter has explained about the three general types of strategies that are mostly applied by the businesses to gain and retain competitive advantages. These three generic strategies are defined in two dimensions; strategic scope and strategic strength.
Strategic scope is a demand-side and appeared at the size and composition of the market that company aim to the target. Strategic strength is a supply-side dimension and refers to the strength or core competency of the company. In his classic Competitive Strategy: Techniques for Analyzing Industries and Competitors, Porter simplifies the scheme by reducing it down to the three best strategies.
They are cost leadership, differentiation, and market segmentation or focus. Market segmentation is narrow in scale while both cost leadership and differentiation are relatively broad in market scope. Numbers of passengers increase these 10 years dramatically. These numbers are very significant in Asia.
It makes the author want to develop and gain more information related to it. The author chooses AirAsia as the company that will be observed. It is a leading airline company in Asia. Some points that will be questioned about this company such as; how AirAsia implement a cost leadership strategy on its operations, and how the strategies meet success.
Some points that will be concerned are how the relationship among five forces model, competitive strategies, value chain analysis, and competitive advantages in the case of AirAsia; and analyze the future development of the industry and what strategies that might be good for AirAsia for the next 5 years.
There are some research objectives regarding research question. The author wants to learn the success of AirAsia related to the Michael Porter competitive strategy. Beside, knowing the reasons why the company applied the strategy and what the cause effect of them. Author hopes will gain as much as information that useful in the MBA learning process; and the last it is a requirement of MBA graduation.
These are some steps that are done by the author: 1 Identify and develop the topic: Author interested with the AirAsia, then start questioning some interesting related with the company such as: How AirAsia meets success? What strategies that applied? How is the application of each strategy and why the reason for doing that? And other questions. Also from the lecture about related topics and subjects. The topic that author raise is related to the strategic management.
Some economic theories will be applied and analyze for AirAsia and airline industry. To done this research paper will need a lot of resources and support, but due to the limitation, I would spend as minimal as possible budget for this research with considering the best result.
This following chapter one presents the background of the study, problem statement, purpose of the study, research strategy and methodology. Chapter three describes the case study of AirAsia, they are the description of the company, the application of a theoretical framework, the finding and analysis.
Chapter four is conclusion and discussion. Chapter five is the references of the author and chapter six is appendix. Economist analyzes competitive forces within an industry to identify opportunity and threats that firm facing.
A model of analyzing the external environment was developed by Michael. This model called five forces model and it helps a company to recognize and analyze the competitive forces in an industry environment. Porter describes the five forces as: threat of new entrants, bargaining power of suppliers, bargaining power of buyers, threat of substitutes, and rivalry among existing firms.
By understanding the fundamental forces able to determine the structure of an industry and understand the strengths and weaknesses of a business, show where a great difference can happen by changing the strategies, and clarify when the trend of the industry can be opportunities or threats. If the barrier is easy; the source of competitive advantage tends to a quick end. On the other hand, if the barrier is hard, the source of competitive advantage will last long and a leader only compete with a set of old competitors.
Threat of new entrants depends on two factors: existing company reacts to the new comers and the barrier to enter into the market that overcomes in the industry. In general, existing company strongly against new comers to enter especially when there is a history about when the competitors have invested money and resources in the industry, and when the industry growth is slow.
The power of suppliers can influence the relationship between small businesses and their customers by changing the quality and increasing the price of the final product. A good company should have a power to use the relation with suppliers to gain competitive advantage.
A strong buyer can push the small business players for a lower price, higher quality of goods; even they can play competitors off one another to get what they want. This bargaining power of buyers tends to increase when a customer buys a product in a large quantities, when substitutes can be obtained easily, and when the cost needed to switch the supplier tend to be low.
The main defense to deal with the threat of substitutes is product differentiation. A company must have a deep understanding of the customer needs, so they able to create the uniqueness of their products. The intensity of competition tends to increase under these following conditions: number of well-balanced competitors, the slow industry growth level, high fixed costs, and lack of product differentiation. Another factor that increased the intensity of competition is high-exit barriers; including specialized assets, government and social restriction, emotional ties, labor treaty, relationship with other business unit, high switching cost, and another reason that make company stay and fight even when they know that the business is not profitable.
The greater the threat posed by an industry force, the less attractive the industry becomes. With understanding the industry forces enable the small business owner to develop strategies to deal with them.
These strategies can help the business owner to meet the customers need and own competitive advantage over rivals on its industry. Those four factors named SWOT. SWOT analysis can be applied in a way to analyze and sort numerous things that affect these four factors, and then applied on SWOT matrix diagram.
When the application is how the strength gain advantage from the existing opportunities and how to overcome weaknesses that prevents profits advantages of opportunities. Further step, how the strengths able to deal with threats and how to overcome weaknesses that able create new threats. Porter said, competitive strategy makes an organization or a company gains competitive advantages from three different points: cost leadership, differentiation, and focus leadership.
Porter mentions these as generic strategies. Cost leadership highlighted producing product at a very low per-unit cost for price-sensitive customer airline customer. Two types of alternative of cost leadership strategies are defined. Type 1 is a low-cost strategy that sells products or services to a various customers at the lowest price available on the market.
Type 2 is the best-value strategy that sells product or services to various customers at the best price-value available on the market; the type 2 strategy purposes to provide market several of products or service at the lowest price compare with the competitor products or services price.
These two strategies are targeted to a large market. Differentiation is a strategy purposed at producing products and services considered unique industry wide and directed at consumers who are relatively price-insensitive.
Focus leadership means producing products and services that accomplish the needs of a small group of people. There are two alternative types of focus strategies. They are type 4 and type 5. Type 4 is low-cost focus strategy, which is selling products or services to a small group niche market of customers at the lowest price on the market compare with the existing competitors. Type 5 is best-value focus strategy that sells products or services to a small group of people at best price-value available on the market beyond competition.
Both type 4 and type 5 strategies target is a small market. The difference between them is type 4 strategies sell products and services to a niche market at the lowest price, on the other hand type 5 sell products and ser vices to a niche group at a higher price but equipped with features so the products and services are perceived as the best value.
features of cost leadership strategy
In my career as a business leader, I have learnt the importance of having a proper cost strategy. Working with your costs have proven successful many times, but it has its challenges. In this article, we will elaborate on the concept of cost leadership. We will explain the concept, provide its advantages and disadvantages as well as describe how cost leadership can be established. Cost leadership is when a company has the lowest production costs in their market. If you have the lowest cost, it means that you can lower the price so much that all other sellers are making a loss, while you are still making a profit. Essentially, if you are the cost leader, you will win each and every price war in your niche.
Firms that compete based on price and target a broad target market are following a cost leadership strategy. Several examples of firms pursuing a cost leadership strategy are illustrated below. McKee started selling treats for five cents each in the early s. The Nature of the Cost Leadership Strategy It is tempting to think of cost leaders as companies that sell inferior, poor-quality goods and services for rock-bottom prices. Despite its attractive price tag, the Yugo was a dismal failure because drivers simply could not depend on the car for transportation.
Strategy is the overarching force behind successful innovation. It is crucial for a business to know what its purpose is before the organization can design products, services, or programs for sale. Each business has a unique purpose and reason for existing, a mission. The most successful firms recognize a strategy that balances existing product lines while developing new products NPD that expand the market. Strategy is a key element of the New Product Development Professional NPDP certification exam and for engineering managers, but, more importantly, it is a fundamental characteristic of effective innovators.
Consultants Review Magazine
This is achieved by having the lowest prices in the target market segment, or at least the lowest price to value ratio price compared to what customers receive. This strategy requires a business to advertise that their … During that time, the company faces the risk of changing consumer tastes or preferences. 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 5.
Sometimes, a company can improve its net profits by making a product different rather than becoming a cost leader — selling items for the lowest price on the market. Even if a company attains cost leadership, it may not hold onto that lead for long. In general, smaller firms try to compete with larger firms on differentiation rather than cost leadership.
14 Advantages and Disadvantages of Cost Leadership Styles
By Tanuja A Akkannavar. Cost Leadership is a method used by companies in which, the cost of products is reduced in order to gain a larger marketplace and profit. Cost Leadership is one of those strategies companies use to produce high quality and standard products and selling them for a lower price than its competitors.
Похожий скорее на крепость, чем на танцевальное заведение, он со всех сторон был окружен высокими оштукатуренными стенами с вделанными в них битыми пивными бутылками - своего рода примитивной системой безопасности, не дающей возможности проникнуть в клуб незаконно, не оставив на стене изрядной части собственного тела. Еще в автобусе Беккер смирился с мыслью, что его миссия провалилась. Пора звонить Стратмору и выкладывать плохую новость: поиски зашли в тупик.
Cost Leadership – Strategies, Advantages, Disadvantages. March 8, By Hitesh Bhasin Tagged With: Marketing management articles. In simple terms, cost.
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Sientate! - услышал он крик водителя. - Сядьте. Однако Беккер был слишком ошеломлен, чтобы понять смысл этих слов. - Sientate! - снова крикнул водитель. Беккер увидел в зеркале заднего вида разъяренное лицо, но словно оцепенел.
- Я же терпеть не могу мотоциклы. Он крикнул парню: - Десять тысяч, если отвезете меня в аэропорт. Тот даже не повернул головы и выключил двигатель.