Cost leadership strategy is a method of reducing costs and producing the least expensive goods in a market or industry in an effort to gain market share.
Aldi (abbreviation of ALbrecht-DIskont) is a chain of hard-discount supermarkets originally domiciled in Germany. The group is a family business, founded in 1913 in a popular district of Essen by Anna Albrecht who ran a small grocery store until the end of World War II. At its inception, ALDI managed to reduce costs by applying a few principles: limited shelf choice, with 800 or more items in stores, few fresh products and only private labels, to increase margins. However, in 2012, Aldi changed strategy and decided to market certain major brands with a high level of notoriety.
This strategy:
✓ Particularly beneficial in a market where price is an important factor.
✓ Achieving cost leadership is Aldi becoming the lowest cost producer compared to competitors.
✓ This is usually done through large-scale production, which enables Aldi to achieve volume savings, or by innovating the production process.
✓ Obtaining high quality raw materials at the lowest price is the primary goal when working on a cost leadership strategy .
* Keynote:
✓ Cost leadership is not the same as price leadership. For that:
✓ A cost is the money that Aldi gives to produce and bring a product to market ( labour, capital, materials, wages, bills and other transaction costs).
✓ Price is the money Aldi gets from that product (total production costs and seller profits).
* This cost leadership strategy enables Aldi to:
✓ To charge the lowest amount for a product while still being profitable.
✓ Other companies have to sell their products at a loss to compete with cost leader prices.
✓ Cost leadership also withstands downturns better than competitors because they are experienced in attracting consumers with budgets in mind.
✓ Can Cost leaders are more flexible. Because their costs are lower, they can discount prices more often or perhaps try out other product offerings that other companies may not be able to.
* Choosing a cost leadership strategy on Aldi's end can be risky. In contrast to offering superior products or brand appeal, a cost leadership company's greatest value to consumers tends to be lower prices.
