Cima E2 Exam Question No 45

Question No 45:

Porter's Generic Strategies - Cost Leadership   

Cost Leadership This means being the lowest cost producer in the market. For similar products selling at the market price the cost leader will generate higher profits. They can alternatively sell at lower prices and generate market share. In times of falling prices, the cost leader is able to sustain profitability for longer and survive where other companies may fail. Cost advantages can be achieved by minimising costs throughout the value chain. For example through:

• Making a significant investment in efficient production machinery. 
• Designing products for efficient manufacturing 
• Using efficient distribution channels, minimising sales and distribution costs. 
• Sourcing low cost supplies. •Generating economies of scale through mass production.