Cost Leadership Examples #4: Mcdonald'S

Cost Leadership
Aiming to become Lowest Cost Producer

 The firm can compete on the price with every other
industries and earn higher unit profits.
 Cost reduction provides the focus of the organization’s
strategy.
 Targets a broad market.
 Competitive advantage is achieved by driving down
costs.
 A successful cost leadership strategy requires that the
firm is the cost leader and is unchallenged in this
position.
Cost leadership examples #4: McDonald’s
Of course, there can’t be a list of Cost Leadership examples without one of the most
famous brands in the fast food industry – McDonald’s. But how does the company
achieve its competitive advantage?
Let’s take a look:
 Rapid delivery of food – McDonald’s has optimized the processes of cooking

food, making them simple and easy to learn by all employees, reducing the learning
curve as much as possible.
 Training – additionally, the company has a division of labour that allows them to
recruit and train freshers as opposed to hiring already trained cooks, which allows them
to pay low wages.
 Vertical integration – compared to competitors, McDonald’s owns the facilities
that produce the the ingredient mixtures for their products, further minimizing its costs.
In other words, the company manages to cut costs not only when it comes to raw
materials and optimized human resources, but also by high asset utilization – yes, the
one we saw in the previous point.
Because they are able to produce and deliver the food as fast as possible, they are
able to serve more clients as opposed to their competitors in the same amount of time.
Cost leadership examples #5: IKEA
Needless to say, the famous Swedish furniture retailer has absolutely revolutionized the
furniture industry.
By producing huge quantities of standardized products that people can actually

assemble themselves, IKEA has gained a significant competitive advantage with its
cost leadership strategy. Today, the multinational group operates 433 stores across 52
countries.
IKEA is an absolute leader in the furniture industry when it comes to low costs, and here
is why:
 Standardized products – as opposed to competitors, IKEA doesn’t offer

personalized products. Practically all of them are standardized, which allows the
company to produce them in huge quantities for all of its stores worldwide. And achieve
economies of scales that smaller competitors are just not able to.
 Self – assembly – the retailer seeks for suppliers who are able to manufacture
quality subassemblies at the lowest costs possible, with customers having to assemble
the furniture themselves. Which is one reason why their prices are so low, as IKEA
doesn’t spend budget on employees for the assembly process. You could hire them
additionally, but they are not included in the basic product price.
 Outsourcing – as many other companies do, IKEA also outsources the
manufacturing of its products in low-wage countries, which allows them to cuts on costs
additionally.
Interestingly enough, IKEA also follows a differentiation strategy to a certain extent,
along with its cost leadership advantage. The company practically invented a
completely new and innovative business model that people instantly loved.
Cost leadership examples #6: Amazon
Next on our list of Cost Leadership examples is the multinational king of ecommerce
– Amazon. When it comes to Porter’s concept, the company’s core strategy is clearly
cost leadership compared to other brick and mortar retailers.
Amazon achieves its competitive advantage in multiple ways, including:

 Economies of scale – the company has huge warehousing facilities and
processing capability, thus being able to cut on costs through physical economies of
scale.
 Advanced technology – by using advanced computing and networking
technologies, Amazon achieves maximum operational efficiency (and minimized costs).
 Process automation – the company has managed to automate a lot of
operational processes, including purchase processing and delivery scheduling, among
others.
The main goal of Amazon is to develop a competitive advantage through continuous
improvement of IT infrastructure. However, just as we saw with IKEA, the company is
also achieving certain levels of differentiation as well.
For example, one way the company has managed to differentiate itself is through
customer reviews and feedback, encouraging customers to buy more from Amazon.
And now, on to the next on our collection of cost leadership examples:

Cost Leadership Examples #4: Mcdonald'S

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Cost Leadership

Aiming to become Lowest Cost Producer

Cost leadership examples #4: McDonald’s

Let’s take a look:

 Rapid delivery of food – McDonald’s has optimized the processes of cooking

By producing huge quantities of standardized products that people can actually

 Standardized products – as opposed to competitors, IKEA doesn’t offer

Cost leadership examples #6: Amazon

Amazon achieves its competitive advantage in multiple ways, including:

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