Question
Question 6 Porter (1985) Cost Leadership Strategy has several potential limitations. Which statement is incorrect? A. There may be difficulty in sustaining cost leadership in the long run B. It can lead to damaging price wars C. Danger of decline in the chosen segment or niche D. Other firms may be able to similarly lower their costs B D A 1 pts
Answer
4
(301 Votes)
Monroe
Master · Tutor for 5 years
Answer
C
Explanation
This question refers to understanding the potential limitations of Porter's (1985) Cost Leadership Strategy. Your task in this question is to figure out which of the given options represents an inaccurate statement about this strategy. The theory states that a firm that successfully minimizes its costs will acquire a competitive edge by underselling its competitors while maintaining reasonable profit margins. However, there are shortcomings to this drafting. The answer will be clear when by next level elimination.A and D: Cost reduction is difficult to maintain in the long term and the danger posed by competitors lowering their costs similar to your own, run concurrent with the core reality of whatever attempts at securing the position of low-cost leader being transient in nature.B: Damaging a price war is a real consequence. As you establish a price lower than your competitors, your competitors may in turn lower their prices, which cuts into profit and intensifies competition - a scenario leaving everyone worse off.C: Porter's Cost Leadership Strategy operates on the basis of whole-industry competition rather than focusing on a niche or segment. As such, this statement is incorrect.