Cost Leadership Strategy

Cost Leadership Strategy

 Discussion

      Cost leadership strategies are policies that enable businesses to establish a low operational cost within their niche.  The primary goal of this strategy is to allow a business to gain competitive advantage by operating at costs lower than that of its competitors (McDonald's Generic Strategy & Intensive Growth Strategies). Substantial investment in advertising does not necessarily imply a company is utilizing product differentiation strategy. In the event, the businesses advertising budget is lower than that employed by its competitors the business can be considered to be utilizing cost leadership strategy. In case, the advertising cost is added to the total cost of production and the company ends up having used fewer resources than its competitors this approach can be regarded as cost leadership. Product differentiation entails a firm highlighting the unique aspects of its product which are different from that offered by its competitors. Advertising cannot be considered as product differentiation unless there is a unique aspect of the product that is being advertised (McDonald's Generic Strategy & Intensive Growth Strategies).

           The fast food restaurant business is known for yielding small margins which make it difficult for a company to grow.  By successful utilizing cost leadership strategies, McDonald's a famous fast food restaurant has been able to position itself among the largest businesses regarding revenue in the world. Since its inception in1955, McDonalds has been extremely effective in offering basic fast food meals at prices lower than that offered by its competitors. The business can keep production cost low through a method of dividing labor that enables it to hire and train employees who have no experience. This strategy alleviates the cost of hiring qualified employees who demand higher wages. The company sources for its resources in bulk thus enabling it to get extremely high trade discounts and it also keeps a minimal number of managers who oversee the entire business. By keeping its overall production cost extremely low, McDonalds can keep its product prices also low (McDonald's Generic Strategy & Intensive Growth Strategies).