Cost Leadership For The Generation Of Revenue

1070 Words Nov 9th, 2014 5 Pages
What is cost leadership? Describe the role of cost leadership in the generation of revenue. Use Walmart as a case study and apply the construct of cost leadership.
The goal of a cost-leadership strategy is to reduce the firm’s cost below that of its competitors. The cost leader, as the name implies, focuses its attention and resources on reducing the cost at which it is able to offer a product or service (and still make a profit in the long term). The cost leader optimizes all of its value chain activities to achieve a low-cost position. Although staking out the lowest-cost position in the industry is the overriding strategic objective, a cost leader still needs to offer products and services of acceptable value.
Firms do not have to sacrifice revenue to be the cost leader since high revenue is achieved through obtaining a large market share (Porter, 1979, 1987, 1996; Hooley et al., 2004; Bauer and Colgan, 2001; Hackett, 1996; Reid et al., 1993). Lower prices lead to higher demand and, therefore, to a larger market share (Helms et al., 1997). As a low cost leader, an organization can present barriers against new market entrants who would need large amounts of capital to enter the market (Hyatt, 2001). The leader then is somewhat insulated from industry wide price reductions (Porter, 1980; Hlavacka et al., 2001; Malburg, 2000).
History of the creation of one of the largest retail chains in the world of Wal-Mart is associated with the name of Sam Walton. In the mid-1950s…
Open Document