How is a low-cost leader affected by rising supply costs?

A low-cost leader typically operates on thin margins and aims to offer the lowest prices in the market by minimizing costs and maximizing efficiency. When supply costs rise, the challenge for a low-cost leader is to maintain their competitive pricing while also ensuring profitability.

The correct answer highlights that, despite rising supply costs, a low-cost leader can continue to earn returns. This can occur if they possess strong cost management practices and operational efficiencies that allow them to absorb some of the cost increases without passing all of them onto consumers. Furthermore, if their pricing strategy is robust, they may have the flexibility to incrementally increase prices without losing significant market share, especially if they are a dominant player in their market.

In contrast, organizations that are unable to adapt to rising supply costs may find themselves squeezed, unable to maintain their competitive edge, and potentially losing customers due to price increases. Therefore, a low-cost leader's ability to navigate these challenges while still generating returns emphasizes their resilience and strategic advantage.