cost leadership is a strategy in which a firm outperforms competitors in producing products or services at the lowest cost. The cost leader makes sustainable profits at lower prices, thereby limiting The growth of competition in the industry through its success at price wars and under-mining the profitability of comprtitors, which must meet the firm's low price. The cost leader normally has a relatively large market share and tends to avoid niche or segment markets by using the price advantage to attract a large portion of the broad market. While most firms make strong efforts to reduce costs, the cost leader may focus almost exclusively on cost reduction, thereby ensuring a significant cost and price advantage in the market.
Cost advantages usually result from productivity in the manufacturing process, in distribution, or in overall administration. For example, technological innovation in the manufacturing process and labor savings from overseas production are common routes to competitive