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126422045 Barney Smca4 04 Essay

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Chapter 4

Cost Leadership

Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall.

4-1

Cost
Cost Leadership
Leadership

The Strategic Management Process
External
Analysis

Mission

Strategic
Choice

Objectives

Strategy
Implementation

Competitive
Advantage

Internal
Analysis

Business Level
Strategy
How to Position a
Business
in the Market?
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall.

Corporate Level
Strategy
Which Businesses
to Enter?
4-2
2

Cost
Cost Leadership
Leadership

Business Level Strategies
Two Generic Business Level Strategies
Cost Leadership:
• generate economic value by having lower costs
than competitors
Example: Wal-Mart
Product Differentiation:
• generate economic value by offering a product
that customers prefer over competitors’ product
Example: Harley-Davidson
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall.

4-3
3

Cost
Cost Leadership
Leadership

Why Cost Leadership Matters
Competitive Market
ATCind
ATCff
P

Above Normal
Economic
Returns

Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall.

D

Q

4-4
4

Cost
Cost Leadership
Leadership

Understanding Cost Advantage
Managers need to understand who has
the cost advantage in their market
• it could be the focal firm
• develop a strategy to exploit the advantage
• it could be a competitor
• develop a strategy to either capture the
advantage or compete on some other basis
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall.

4-5
5

Cost
Cost Leadership
Leadership

Sources of Cost Advantage
Economies of Scale
• average cost per unit falls as quantity increases
-until the minimum efficient scale is reached
• are a cost advantage because competitors may
not be able to match the scale because of capital
requirements (barrier to entry)

• international expansion may allow a firm to have
enough sales to justify investing in additional
capacity to capture economies of scale
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall.

4-6
6

Cost
Cost Leadership
Leadership

Sources of Cost Advantage
Diseconomies of Scale
• are an advantage for those who do not have
diseconomies of scale
• occur when firms become too large and bureaucratic
• are a risk of international expansion
Example: Nucor Steel

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