Question

Which of the following is a risk (or potential pitfall) of cost leadership?

a. Cost cutting may lead to the loss of desirable features
b. Attempts to stay ahead of the competition may lead to gold plating
c. Cost differences increase as the market matures
d. Producers are more able to withstand increases in suppliers' cost

Answer 1

a. Cost cutting may lead to the loss of desirable features

Step-by-step explanation:

In the business market, sometimes there occurs a price war between the various companies regarding the same type product and each company reduces the price to as minimum as possible to take the cost leadership in the market. Some drawbacks that occur in such a strategy of companies are listed here -

• There is a tight control on the expenses during the manufacturing of products which often results in loss of desirable features in the products
• No new innovations are made as companies focus mainly of the current product
• The feedback of customers seem to be of no importance in such conditions
• This strategy promotes the lower quality products in the market