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CMA Final · Strategic Cost Management · Introduction to Strategic Cost Management

Bharat Cycles Ltd competes by offering bicycles at the lowest industry price through large volumes, tight overhead control and standardised models. According to Porter's generic strategies, which strategy is this, and what is the key cost management implication?

This is Porter's cost leadership strategy. Low prices backed by volume, standardisation and overhead control mean cost management must deliver a sustained cost level below competitors across the value chain, unlike differentiation or niche focus, which rely on features or narrow segments.

  1. ADifferentiation; cost management should add features regardless of cost
  2. BCost leadership; cost management should aim at sustained lower cost than competitors across the value chainCorrect
  3. CFocus on a niche; cost management should ignore volume
  4. DStuck in the middle; cost management is unnecessary

Explanation

Low price based on volume, standardisation and overhead control is cost leadership. It requires continuous cost reduction relative to rivals. Differentiation relies on premium features and a niche focus targets a narrow segment, neither of which fits the data.

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