Cost Leadership: Michael Porter's Competitive Strategy

Silken Sellinger, BUAD 123-071

21 September 2016

Learning Journal # 1 – Cost Leadership

Michael Porter developed a concept known as the competitive strategies. It consists of 3 separate approaches to create the framework for your business. I have decided to focus on the Cost leadership approach.

Cost leadership is the strategy that concentrates on keeping expenses down in order to offer the product at the most economical price. Keeping consumers happy with low prices ensures the business will always have a large customer base. It can be a very beneficial strategy and if implemented correctly, can be very lucrative. Lots of research and investigating must be done to ensure success. Also keep in mind that when you become the cost leader, you still have to maintain that position. This involves

In 2010, for instance, Wal-Mart racked up over $400 billion in sales. Instead of offering just selected items at a low price to bring in customers, Wal-Mart uses its massive buying power to force supplier companies to become more efficient and sell products at a low price all the time. (Huebsch, n.d.). Thus, Walmart strategy is firstly oriented towards low prices. In order to reach it, it has to work more efficiently than its competitors, lower the costs inside the company and also the prices of the supplier provided products. In a company, which has chosen low price strategy, one should not expect high salary or the best customer service (Stankevičiūtė, Grunda, & Bartkus, 2012). NewLeaf Airlines main strategy is to offer air transportation at the most appealing price possible. They have striped away any “luxuries” that add extra fees to the flight to ensure that they are the cost leaders. “That no-frills, bare-bones flight option may not be for everyone, but NewLeaf is betting its business future on the potential consumer segment that has been waiting for just such a product” (Davis,