Definition of Low-Cost Strategy
There are many definitions of low-cost strategy; according to our research, it was defined as a type of pricing strategy in which the company offers its products at a low price.
They offer low pricing to stimulate demand and gain a higher market share.
Using the company’s best plan for a low-cost strategy can gain cost advantages by increasing its efficiency or getting the raw material at a low cost.
Also, in a low-cost strategy, the company with the lowest cost is the true winner in the market place. However, for a company to be a cost leader, there are some internal strengths to follow:
• Access to capital to make significant investments in the company.
• Efficiency in the Production system in the company.
• Expertise to improve the manufacturing process in the company.
After knowing what a low-cost strategy can bring to a company, it can also attach to the risk that other firms may also reduce their prices.
Let’s quickly run some example base on the low-cost strategy. The companies produce the same products and sell at the same price in the marketplace, but if any one of the companies sells at the lowest cost has the advantage of a higher level of profit per sale over the second company.
The company with the lowest cost will have the power to maintain or increase its market share and even invest more in marketing.
To remain in the market place, they must understand the low-cost strategy to continually reduce it and win over competitors.
Strategy To Fight Low-Cost Rivals
There are many competitors in the marketplace, but without a proper plan and strategy to stay at the top, everything will be abortive.
Knowing your rivals is the best option than the one you don’t know. The company must be ready to invest more money, people, and time to fight archrivals.
It is not easy like that because most companies find it tough, challenging to rival the big companies; instead, they look to reassure take on familiar opponents that get the same ambitions, strategies, weakness, and even strength to compete.
The Sustainability of Low-Cost Businesses
In this aspect, many questions have been asked about it. Do low-cost businesses permanent? But the answer is just only in one direction whereby a company that sells at the lowest price can’t continue with the price and make it permanent. The tactics are just a strategy to dominate market place and have higher sales.
Even a bigger company could experience low sales in the market place if they didn’t change their strategy on time.
When Differentiation Works
Once businesses later realize that they can’t win a price war with a low-cost company, the next thing they do is try to differentiate their products to gain their consumer’s attention.
Following some approaches we going to list out can help you better:
- Make sure to design cool products.
- Continually innovate in the tradition
- Try to offer a unique product mix
- Lastly, sell experiences to gain a market place.
We will look into the advantage and disadvantages of a low-cost strategy.
Advantage Of Low-Cost Strategy
The Low-cost strategy mainly based on the approach to business whereby a company’s plan is an effort to operate in the lowest cost business in its industry.
- Higher Profitability
- Increased Market Share
- Capital for Growth
Disadvantage Of Low-Cost Strategy
A good strategy also has a wrong side to affect business one way or other. See some below:
- Poor Vendor Relations
- Price Wars
- Reduce Profit Margins
- Perception of Poor Quality
- Inability To Have Sales
Knowing the right step at the right time can be hard to get, but once the company strategy works over their rival in the marketplace, profit can be assured within a short period.
While planning for the best low-cost strategy, take note of the other effects of the plan so you can quickly fix the problem if anything later arises.
Basically, from the research we gather, we discovered that any small company could gain market share by low prices than the competition. But the outcome is to be able to sustain that practice for long.
And if your company has everyday low prices, you will encounter business problems that you have not anticipated.