Cost leadership is a business strategy that aims to establish a competitive advantage by having the lowest cost of operation in the industry. This strategy is often driven by company efficiency, size, scale, scope, and cumulative experience. A cost leadership strategy aims to exploit scale of production, well-defined scope, and other economies, producing highly standardized products, using advanced technology. The key features of cost leadership include:

• Low cost of operation: This is the main feature of cost leadership, which is achieved by minimizing costs in all aspects of the business, including production, manufacturing, sales, and customer service.

• Efficient utilization of scale of production: Cost leaders aim to produce products or services at a large scale to take advantage of economies of scale.

• Good purchasing strategy: Cost leaders aim to purchase raw materials and other inputs at the lowest possible cost.

• Advanced technology: Cost leaders use advanced technology to automate processes and reduce labor costs.

• Standardized products: Cost leaders produce highly standardized products to reduce costs and increase efficiency.

Cost leadership is different from price leadership. A company could be the lowest cost producer yet not offer the lowest-priced products or services. If so, that company would have higher than average profitability. However, cost leader companies do compete on price and are very effective at such a form of competition, having a low cost structure and management.

Cost leadership is an effective business-level strategy to the extent that a firm offers low prices, provides satisfactory quality, and attracts enough customers to be profitable. However, it may not be suitable for all industries. For example, industries that require high levels of innovation or customization may find it difficult to implement a cost-leadership strategy.