Certified Production & Operations Manager (POM) Practice Exam

Which of the following is the best example of competing on low-cost leadership?

1. A firm produces its products with less raw material waste than its competitors do

2. A company increases its prices to improve profit margins

3. A business focuses on superior customer service

4. A manufacturer invests heavily in advertising

The correct answer is: A firm produces its products with less raw material waste than its competitors do

Competing on low-cost leadership primarily involves a company's strategy to produce goods or services at lower costs than its competitors, allowing it to offer lower prices to consumers while maintaining profitability. Producing products with less raw material waste demonstrates a commitment to cost efficiency, which is essential for a low-cost leadership strategy. By minimizing waste, the company lowers its production costs, enabling it to keep prices competitive in the marketplace. In contrast, increasing prices to enhance profit margins does not align with low-cost leadership, as it typically involves positioning the product as premium rather than cost-effective. Focusing on superior customer service emphasizes quality and customer experience rather than low costs, which can lead to increased expenses. Lastly, investing heavily in advertising is generally associated with building brand recognition and market presence, which can divert resources away from maintaining low production costs. Thus, the first option clearly illustrates a commitment to cost efficiency central to a low-cost leadership strategy.