Cost Leadership Strategy

Topics

price, high-low vs everyday low pricing, competitive strategy, retailing, cost leadership


Review the activity below or download the PDF student worksheet

Student Worksheet: Cost Leadership Strategy


Student Discussion Activity

One of the key requirements for achieving success as an ongoing price discounter is to create a cost leadership position. That means that the firm has built some cost advantages over their competition.

This activity quickly highlights some of the practices that Aldi Supermarkets (an established German-based discount supermarket chain expanding across the globe ) have adopted to achieve a cost leadership position and provide ongoing longer prices to customers.  

 

Some of Aldi’s Practices – Designed to Reduce Costs

  1.  They do not pack the groceries into bags – you have to pack yourself
  2.  They do not provide free plastic bags – they sell plastic bags (for about 5 cents each)
  3.  Most of their stores are in ‘low-traffic’ locations, which enables cheaper rent
  4.  They do not spend much money on the look/design of the store
  5.  They tend to operate their stores with a limited number of staff
  6.  Most of their stores have little/no shelving (reducing set-up costs)
  7.  They have limited packing/handling of merchandise (often leaving products on pallets)
  8.  Most of their stock consists of lesser known (and therefore cheaper) brands
  9.  They sometimes buy and resell liquidated ‘clearance’ stock
  10.  The store manager tends to have a ‘hands-on’ role (such as helping sort merchandise).

Student Discussion Questions

  1. Do you agree with Aldi’s cost leadership strategy or was there a better entry strategy that they could have adopted?
  2. What else could they do to strengthen their cost leadership position?
  3. Do you think that their approach is simply a price penetration tactic and they will increase their prices over time?
  4. Do you think that the local major supermarket chains would be concerned about Aldi (either now or longer-term)?
  5. How can the local major supermarket chains defend against Aldi’s threat to their ‘budget-conscious’ shoppers?

Related Activities

Pricing and Positioning

J.C. Penney’s Cost-cutting Transformation