Cost Reduction, Competition and Industry Performance

In many markets, firms compete over time by expending resources with the purpose of reducing their costs. Sometimes the cost-reducing investments operate directly on costs. In many instances, they take the form of developing new products that deliver what customers need more cheaply. Therefore product development can have the same ultimate effect as direct cost reduction. In fact, if one thinks of the product as the services it delivers to the customer (in the way that Lancaster pioneered), then product development often is just cost reduction.