According to M E Porter which he described cost leadership strategy as cost business strategies as when a company tries to provide a product at lower cost than any of its competitors and also a margin of flexibility to a firm to lower price if the competition becomes stiff and jet to earn more or less the same level of profit. To our observation to this, a company or firms competitive advantage depends on low cost of their products and services against it competitors.
Porter’s explanation for this is that firm with high market shares are successful because they pursued a low cost leadership cost strategy. Commenting on this; we also realized that cost leadership strategy can also be called as low cost strategy. Assumption was given to firms or company that win its market shares by appealing to cost conscious and costumers being sensitive to low price of commodity with its target market by creating customer values and wants. To succeed in offering the lowest price still achieving profitability and a high returns in investment, a firm like MELCOM GHANA.
Melcom Ltd is Ghana’s largest chain of retail department stores with Head Office at North Industrial Area, Kaneshie, and has about 18 branches nationwide. Established in 1991, their major portion of business is retail, however also highly placed in semi-wholesale distribution due to the vast range of goods in stock. They have adopted a policy of low prices and high volumes and this way meet its financial obligations and its customers also benefit. Who is able to operate a lower cost first than its rivals firms and it projected it with these three (3) capabilities in achieving or attaining low cost leadership cost strategy as service providers.
Capabilities/Activities of MELCOM GHANA LTD in support of low cost leadership strategy;
The first activity is achieving high asset turnover. In services industry like retail and wholesale business which has survived from a high level of competition in Ghana. They involved themselves in earning high market shares with their service and product provided to serve their value customers and capturing them for the long run. Melcom asset turnover as indicated that the current use of resources in the sales and marketing efforts is working, and producing an excellent result, however a low cost should not be taken to mean that there is no life left in the company in relation to Wise Geek article, who talks about asset turnover of firm with low cost strategy. As companies resulting in low cost service and product to their client that enable them win more market shares in the Market by delivering fast customer service responses and others. Assets turnover is fixed costs that are spread over a large number of units of the products and services, resulting in low unit cost which Melcom Ghana Ltd has succeed in doing and achieving it, and also takes advantage of economic of scale and experience curve effects. It create barriers for new rival who jet to enter and pleasuring the other existing competitors like ACCRA SHOPPING MALL, SHABBA SHOPPING MALL, MAX MART, MAKOLA SHOPPING MALL, and other super market, who may be enable or difficult to attain that scale necessary to match the firms low cost and prices. Mr. B R Kubchandani, the Chairman of Melcom Groups of Companies among others like; Dr. Alhaji Asuma Banda of Antrak Group, Ken Ofori Attah, Data Bank Ltd, Captain Kofi Amoabeng CEO of UT Bank, etc who have succeed in earning high assets turnover in Ghana. Under the chairmanship of Mr. B R Kubchandani, Melcom Ghana achieved Assets Turnover of US$150 million as at last year.
Another dimension is achieving low direct and indirect operating costs, and is by offering high volume of standardized products, offering basic no-frill products and limiting customization and personalization of product and their services which is to be offered. Melcom has limited their cost by customizing and tagging their logos on their products and personalizing their services and other displays to shows their presents in the market. The production costs are kept low by using fewer components by drawing the forces attention. Overheads are kept low by establishing a cost- conscious culture and their act of maintaining the strategy requires a continuous search for cost reduction in all aspect of the business. This will be outstanding, controlling production costs, increasing assets capacity utilization, and minimizing their costs including distribution and advertise. The distribution strategy is to obtain the most extensive distribution possible. Also Melcom as Hyper and Super Market, developed evaluated and qualified vendors. Developed quality standard for purchases, implemented process and criteria for vendor development and saved operational cost by 8% by managing inventory. By monitoring ageing of inventory, vendor contact, product sampling, vendor negotiation including special festival buying based on marketing calendar, ensuring on shelf product availability of more than 90% during each quarter. Melcom promotional strategy often involves trying to make a virtue out of low cost product features.
The final approach is to control over the supply or procurement chain to ensure low cost. This could be achieved by bulk buying to enjoy quantity discounts for customer, squeezing supplies on price, instituting competitive bidding for contracts, working with vendors to keep inventories low using methods such as just-in time purchasing or vendor management. Melcom engages themselves in distribution of vast range of products that often exceeds 4,500 items and includes everything from household, kitchen, plastic wanes, travel goods, furniture, electronics, home appliance fans, electrical, crockery glassware, exercise equipment and more, and not being a production or manufacturing firm, they contracts with these companies to supply them with their needed product. The manufacturing companies will send their proposal for consideration in doing business with them. With the wide range of proposal received it will consider the product requirement, per unit cost and their specification, in accordance to customer requirements and most especially low cost on prices. Melcom is famous for squeezing it supplies to ensure low price for its goods.
In commentary, Cost leadership strategies are only viable for large firms like Melcom Ghana Ltd with the opportunity to enjoy economies of scale and large services and products volumes. In the remote and peripheral areas of Ghana, Melcom has actually contributed in bringing the cost of living down by providing all household necessities at extremely reasonable prices. The success of Melcom is low cost budget which able them achieve market shares growth by offering customers with cheap, no frill products much cheaper than it rivals. Melcom with their low cost leadership strategy, they been awarded the BEST RETAIL OUTLET OF THE YEAR AWARD for a consecutive six (6) years in a row from 2002-2007 by Chartered institute of Marketing Ghana.
Google search; Melcom Ghana
Michael E Porter; Competitive Advantage (New York,: Free Press, 1985)
Michael Porter, Generic Competitive Strategies
Wise Geek Articles; www.wisegeek.com