Michael Eugene Porter is an American academic known for his theories on economics, business strategy, and social causes (1). One of the theories he proposed is the “Competetive Strategy”(2). Competitive strategy includes four major strategy- Cost Leadership, Differentiation and Focus (Focus Cost and Focus Differentiation) Strategy. These strategies are widely used by successful big corporations and new small business enterprise alike.
Cost Leadership Strategy- McDonalds
This strategy also involves the firm winning market share by appealing to cost-conscious or price-sensitive customers.(3)
McDonald’s has successfully implemented the cost-leadership strategy and has proved to be one of the most successful fast food chains in the world. Their cost leadership is attained in three main ways:
a- Achieving a high asset utilization- Economies of Scale
McDonalds has set “the way” and means to do things. Since their focus is on food services industry, they have standardized the time taken to complete an order, huge quantity production and a standardized -quality production process. This forces the fixed costs of the enterprise to spread, hence their would be a low cost of production.
b- Low indirect or direct expense
McDonalds has kept direct expense low by paying low salaries, choosing premises with low rent and by offering high volumes of standardized products. Thus the total cost of production would be considerably low.
All this is done