Cost Focus Vs Cost Leadership

Cost Focus

Cost Focus is the business strategy in which the company seeks to develop a low-cost product within a small market share.  This strategy will not complete in a broad market or international market, it targets a small market share such as the local supermarket, local transportation, specific products for a group of people. It aims to provide the best value to specific customers at a lower cost and become an expert in their products. The company looking for the underserved segment/customers who need more attention. These customers usually treated as normal by the big corporate, so they are highly likely to be attracted by the cost focus company.

Cost Leadership

Cost Leadership is the business strategy in which the company willing to acquire a large market share by lowering the cost. The company aims to decrease the cost to the lowest level among the competitors. This strategy focuses on the whole market share in the industry and uses a different method to lower the cost of the product.

The company tries to eliminate unnecessary costs and priority the main cost which provides benefit to the customers. They aim to set the selling price below the average market price in order to attract a massive market share. They still make a good profit due to lower cost of goods sold.

Operational Strategies to Support Cost Leadership:

  • Activity Base Costing: this costing method focuses on eliminating unnecessary activity and keep only value-added activities in order to minimize cost.
  • Mass Production: company can enjoy the benefit from economies of scale to minimize the cost. Large purchases from suppliers can have more benefits such as bulk discounts and purchase power. Large production also allows the company to maximize the machine capacity which lowers the cost per unit.
  • Latest Technology: Modern technology allows the company to save production costs by replacing manual work with automation.

Different Between Cost Focus and Cost Leadership

Description Cost Focus Cost Leadership
Company Size Suitable for a smaller company that target a specific group of customers within the industry Suitable for a larger company that targets the whole industry and
Capital requirement Require less capital Require a huge capital to invest in R&D and production process.
Competition The competition is not really huge as the company focus on a niche market share. It’s gone be a hug competition as the company compete with everyone to be the market leader