Generic strategies, as the name
suggests are broad strategies that are not dependant on an industry or a firm.
These strategies are applicable at business level and they suggest ways of
gaining a competitive advantage.
One of the generic strategies is
Cost Leadership Strategy.
A low cost leadership strategy aims
at enhancing the ability of a firm to produce goods and services demanded by
the customers at a lower cost than that of the competitors. In most of the
cases the firms who are trying to incorporate low cost strategies aim to sell
mass products or in other words standardize products for the mass market. They
generally do not advocate customization for a particular customer’s need, taste
or preference.
The Low cost leadership strategies can be imitated
by ones competitors, and thus low cost leadership is not a onetime process. A
successful way of adopting this strategy can be by using the Japanese mantra of
“Kaizen” that focuses on continuous improvement. Continuous rethinking is
important for the implementers of this strategy.
A continuous effort to reduce the cost than that of
the competitor makes a company efficient in that area. Efficiency attracts more
profit margins for the company and act as a strong barrier for the entry of new
competitors. However there will always be a threat of big giants or small firms
in collaboration with foreign firms entering the market and challenging the
cost effective leadership.
In India Big Bazaar has been essentially working on
a low cost leadership strategy. It sells branded products that other retailers
are also selling but Big Bazaar sells at a price 10-15 percent lower than that
of other retailers. How does Big Bazaar do so? Well, Big Bazaar works on a huge
scale. It operates in more than 72 cities and is able to apply economies of
scale effectively thus giving it the low cost advantage. However this one time
idea cannot help them sustain their position as the market leaders, thus they
continued to innovate their cost structures seeking low cost suppliers and
contracting with suppliers for steady supply. Big Bazaar showed how economies
of scale and experienced efforts help to bring down the costs as the capacity
grows.
McDonalds is another interesting example of being a
cost effective leader. It has been very successful in giving its customers fast
food at a very low price. Again the question arises how do they do so? They do
so by hiring inexperience staff, they train them rather than keeping
professional cooks. This lowers their Human Resource cost and they keep very
few highly paid managers. This saving that they do in terms of recruitment
helps them offer their products at bargaining prices. McDonald’s innovative ways
to reduce the cost enables them to truly serve a “happy meal”.
Contributed by:-
Deep Narain
Section C
Strategic Management
Class of 2013-15
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