Low cost leadership
Low cost leadership is when an organization chooses to focus on low cost maintenance of its products in comparison to its competitors. Its strategy depends on attaining low prices and costs with reliable value and quality for money. It aims at attracting more customers by working on integrated actions that help in production of goods at low costs. For this tactic to be a success the low cost leaders have to focus on some segments that make the consumers satisfied. This could be through delivering products that are more beneficial than that of the rivals and also making their operations efficient enough for the costs to be down. For instance Aldi, Trader Joes retailer in the US, has thrived in the competitive market in Germany. Its advantage is the product range it has. Its store is small and offers a relatively small stock size compared to supermarkets. It however sells more than the supermarket thus being able to negotiate good quality at low prices with the suppliers.
Such a company uses tactics like setting up its stores in relatively inexpensive areas like side streets and down town places. This allows them to reach more consumers and at a low cost. Low cost leaders try their best to match the lowest prices offered by the competitors. This strategy holds the customers in spite of the sales made by the rival businesses. This is the best implied threat since the low cost leader declares to maintain the lowest prices and also match any rival business willing to make their goods go at a lower price. The will to go the extent of lowering the prices discourages the rivals and potential entrants in the market as the only remaining options are providing their products at a low cost and retain their prices below the leader. If not they have to provide goods that are of higher quality.
Reference
Rittenberg, L. (2009). The world of imperfect competition;Chapter 11. In L. Rittenberg, Principles of micro economics (pp. 276-298). Colorado: Flat World Knowledge.
