COST STRATEGY TO GAIN COMPETITIVE ADVANTAGE
WHAT IS COST STRATEGY ? HOW TO GAIN COMPETITIVE
ADVANTAGE THROUGH COST STRATEGY ?
Cost analysis occupies an important place
in business strategy. In order to gain and sustain competitive advantage, a
firm should not only monitor its cost performance but also should endeavour to
control it. Several strategic decisions like fixation of competitive prices,
provision of after-sale services, quality of the products etc. depend upon
relative cost level of the business firm. The role of cost in different market
conditions is to be examined. The Experience Curve analysis is also important
to derive the cost strategy of a firm. Michael Porter in his book Competitive
Advantage suggested three generic competitive strategies aiming
to develop a dependable position in the long-run and out-perform the
competitors. These three strategies are:
1.
Cost Leadership,
2.
Differentiation,
3. Focus.
All the three strategies can either be used
individually or in combination to each other. Figure-1 shows a matrix of
the three generic competitive strategies and their interrelationship given by
Porter.
Figure-1 : Three Generic Competitive
Strategies
