Explain the Disadvantages of a Cost Leadership Strategy

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The Answer is In some settings, the need for high sales volume is a critical disadvantage of a cost leadership strategy. Highly fragmented markets and markets that involve a lot of brand loyalty may not offer much of an opportunity to attract a large segment of customers. In both the soft drink and cigarette industries, for example, customers appear to be quite willing to pay a little extra to enjoy the brand of their choice. A related concern is that achieving a high sales volume usually requires significant upfront investments in production and/or distribution capacity. Not every firm is willing and able to make such investments. Cost leaders tend to keep their costs low by minimizing advertising, market research, and research and development, but this approach can prove to be very expensive in the long run. A relative lack of market research can lead cost leaders to be not as skilled as other firms at detecting important environmental changes. Meanwhile, downplaying research and development can slow cost leaders' ability to respond to changes once they are detected. Lagging rivals in terms of detecting and reacting to external shifts can prove to be a deadly combination that leaves cost leaders out of touch with the market and out of answers.

Explain the Disadvantages of a Cost Leadership Strategy

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