A Research On The Strategy Of Overall Cost Leadership And Pricing

Overall cost leadership is one of the three basic competition strategies brought up by Michael Porter. For a long time, the business which follow the overall cost leadership strategy must acquire the cost advantage in the industry, and then transfer the cost leadership into price leadership. In this way, it seems that low price is the only choice for cost leader, which is a limitation in pricing practice. So, it is very important to study the overall cost leadership strategy and pricing.On the foundation of previous research, this paper studies the pricing objective of the cost leader, and indicates that the cost leader should pursue the long-run profit maximum by controlling the competition extent and market share. Under this objective, this paper discusses the factors which have influences on the effect of cost leader pricing, including product differences, consumers'responses and competitors'counter-actions. The cost leader should take these factors into account, not just always set a low price. In the end, this paper points out three different pricing tactics for cost leader, and also analyzes how to choose the best tactic among the low price, high price, or even the combination of them both.This paper studies the overall cost leadership strategy and pricing systematically. Low price is very useful for cost leader, but it is not the only choice. The cost leader should take other influencing factors into consideration. And in some circumstances, the cost leader can also set a high price.