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Several examples of firms pursuing a best-cost strategy are illustrated below. The best-cost strategy is a hybrid. They also avoid expensive products of top quality. Identify a niche for your product with a target consumer that is extremely price sensitive and has low switching costs associated with the purchase of a product in your category. One route toward a best-cost strategy is for a firm to adopt a business model whose fixed costs and overhead are very low relative to the costs that competitors are absorbing (Figure 5.10 "Driving toward a Best-Cost Strategy by Reducing Overhead"). It must be able to incorporate appealing (attractive) features at a lower cost than competitors (such as ‘good-to-excellent product performance or quality’). It balances a strategic emphasis on low-cost against a strategic emphasis on differentiation. Firms that charge relatively low prices and offer substantial differentiation are following a strategy (Figure 5.19 “Best-Cost Strategy”). Ho… This term is used to indicate a situation where the company tries to achieve the best (lowest) cost relative to the competitors who offer similar products and simultaneously tries to improve quality. A strategic business plan defines a course of action based on the defined competitive strategy. Although Toyota Motor Company is known for its low-cost strategy, it applied the best-cost strategy when it manufactured its luxury-car Lexus models. It presupposes ‘relentlessly striving to become a lower-and-lower cost provider of a higher-and-higher caliber product.’ Toyota Company of Japan followed the best-cost strategy for its Lexus cars to beat Mercedes-Benz and BMW cars. She holds a Master of Science in engineering from New York University. It is achieved by satisfying customers’ expectations on key attributes of products. It is considered as the most powerful competitive strategy of all. Microsoft is widely recognized as the committed user of the best-cost strategy in software. This strategy is applied to give customers “more value for the money.” It is achieved by satisfying customers’ expectations on key attributes of products. It must have the resources: and competitive capabilities to achieve high quality at a lower cost than the competitors. The best cost provider strategy is easily imitated so a best cost provider needs to be extra vigilant of competitors. Firms that charge relatively low prices and offer substantial differentiation are following a best-cost strategy. A strategy to be the industry's overall low-cost provider tends to be more appealing than a differentiation or best-cost or focus/market niche strategy when A. there are many ways to achieve product differentiation that buyers find appealing. Product development and advertising can both be quite expensive. They want it all! The best-cost strategy is the strategy of increasing the quality of products while reducing costs. A business can provide value for its consumers by using the best cost provider strategy and giving the consumer a higher-end product at a lower cost. They avoid cheap, basic products of low-cost producers. ← Types of Generic Strategies: Which One to Employ? By following the best-cost strategy, the company attempts to attract the ‘value-conscious buyers’ (those buyers who want a superior product at a lower price). A business can provide value for its consumers by using the best cost provider strategy and giving the consumer a higher-end product at a lower cost. Best-cost provider strategy is often called ‘best-cost strategy’. Table 5.9 Best-Cost Strategy. At the same time, prices are charged lower than that of the competitors. This strategy is difficult to execute, but it is also potentially very rewarding. By applying VCA VCA is a strategy tool used to analyze internal firm activities. This term is used’ to indicate a situation where the company tries to achieve the lowest cost relative to the competitors who offer similar products and simultaneously tries to improve quality. The best-cost strategy will work very well in a market where product differentiation becomes the norm because of buyer diversity, and also a substantial number of buyers are sensitive to price and quality. Best-cost provider strategy is often called ‘best-cost strategy’, The best-cost strategy is the strategy of increasing the quality of products while reducing costs. The best cost strategy works well when the target customer is extremely price sensitive and small changes in price bring about large changes in sales volume. The best-cost strategy will work best when the company has the resources, know-how, and capabilities to incorporate upscale product attributes at a lower cost. These market-related factors need to be attended properly by marketers. Attract customers by marketing your best cost provider strategy and differentiating your product based on cost and high value. Strategic Options for Different Industries and Company Situations, Fragmented Industry: Strategies For Fragmented Industry, Declining Industry: Strategies For Declining industry, Maturing Industry: Strategies for Maturing Industry, Emerging Industries: Strategies For Emerging Industries, Cost Leadership Strategy (Low-Cost Strategy), Differentiation Strategy: Definition, Types, Focus Strategy: Meaning, Types of Focus Strategy, Product Life Cycle: 4 PLC Stages and Marketing Strategies of PLC, Competitive Strategy: Four Types of Competitive Strategy, Five Forces Model by Porter: Competition and Industry Analysis, Price: Meaning, Role, Steps of Price Setting Process. It is achieved by satisfying customers’ expectations on key attributes of products. It views the organization as a sequential process of value creating activities. This world-famous IT-giant is continually improving the quality of its software and at the same time continually reducing the costs of its software products. This strategy is a hybrid. it must provide good-to-excellent customer service at a lower cost than competitors. This strategy is ill-advised if the resources and capabilities do not permit the company to manage costs down and product caliber up. Her articles on business, health, technology and travel have been published on various websites ever since. The Internet has helped make this possible for some firms. Add features or services to your product offering so that the target customer is provided with value that is on par with competitive products in the market place. A strategic business plan defines a course of action based on the defined competitive strategy. By following the best-cost strategy, the company attempts to attract the Value conscious buyers’ (those buyers who want a superior product at a lower price). Paige Turner started writing professionally in 2009. It presupposes ‘relentlessly striving to become a lower-and-lower cost provider of a higher-and-higher caliber product.’ Toyota Company of Japan followed the best-cost strategy for its Lexus cars to beat Mercedes-Benz and BMW cars. Recognizes which process could be improved to provide competitive It is easy to say to be a best-cost provider, but it is really a tough job to really become a best-cost provider in the marketplace. Some executives are not content to have their firms compete based on offering low prices or unique features. Implement this strategy continuously over time by creating a sustained effort to continuously cut costs across your value chain. This strategy is difficult to execute in part because creating unique features and communicating to customers why these features are useful generally raises a firm’s costs of doing business. Price your product so that you are the best cost provider and have the lowest pricing when compared to competitors that have product offerings with the same feature set. A number of factors affect the successful implementation of the best-cost strategy. Focus Strategy: Meaning, Types of Focus Strategy →. At the same time, prices are charged lower than the competitors. These two factors give rise to five competitive strategy options for staking out a market position, competing against rivals, and striving to deliver superior value to customers A low-cost provider strategy A broad differentiation strategy A focused low-cost strategy A focused differentiation strategy A best-cost provider strategy As a concept, best-cost means high quality and low price of a product. A company with a best-cost strategy can position itself near the middle of the market – with a medium- quality product at a below-average price, or with a very good product at a medium price. As a concept, Best-Cost means high quality and low price of a product. It is considered as the most powerful competitive strategy of all. Adapt to changes in customer needs for product features and quality, their sensitivity to price, and the entry of newer technology into the market place. We present here some of the most dominant market-related issues or market situations where the best-cost strategy is likely to work best. This strategy is applied to give customers “more value for the money.”. Another example is Microsoft Corporation. Toyota’s best-cost strategy was so successful that the Lexus model was ranked among the top 10 models and the second best-selling luxury brand in the US market. Copyright 2020 Leaf Group Ltd. / Leaf Group Media, All Rights Reserved. To compete against such luxury-car makers as BMW and Mercedes-Benz, Toyota management started making Lexus a car with premium-quality at costs below those of competitors. Many buyers may prefer mid-range products. Reduce overall costs by re-engineering cost activities using techniques such as outsourcing and increased automation to retain your best cost provider differentiation. The best cost strategy may be a risky strategy to undertake as it may be difficult to sustain the lowest pricing in the market and still turn a profit. Three Generic Strategies Best Cost Provider HOW? It balances a strategic emphasis on low-cost against a strategic emphasis on differentiation which is understandable. In order to be successful, the company must have the following resources and capabilities to simultaneously lower down posts and improve quality; When a firm cannot fulfill these conditions or after initial fulfillment of the conditions fails to continue, it is likely to fail in gaining the advantage from the best cost strategy. Strategy is difficult to execute, but it is also potentially very rewarding examples of firms pursuing a strategy. 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