Final answer:
The cost leadership strategy in business can lead to higher prices compared to the competition when competitors are able to achieve even lower costs and undercut the cost leader's prices.
Step-by-step explanation:
The subject of this question is Business. Specifically, it is discussing the positioning strategy of cost leadership. Cost leadership is a business strategy where a company aims to become the lowest-cost producer in the industry. The advantage of this strategy is that it allows the company to offer competitive prices and attract price-sensitive customers. However, a major disadvantage of the cost leadership strategy is that prices may actually be higher than that of the competition in some cases.
This may seem counterintuitive, but it can occur when competitors are able to achieve even lower costs and undercut the cost leader's prices. If a competitor is able to offer a similar product at a lower price, customers may choose to buy from them instead, leading to a loss of market share for the cost leader. In order to maintain profitability, the cost leader may need to raise prices, which can make them less competitive.
For example, let's say a cost leader in the smartphone industry is able to produce smartphones at a lower cost than its competitors. Initially, it can offer its smartphones at a lower price, attracting a large customer base. However, if a competitor develops new manufacturing processes that allow them to achieve even lower costs, they can offer smartphones at an even lower price. In order to remain profitable, the cost leader may need to increase their prices, making their smartphones more expensive compared to the competition.