Best-Cost Strategy: Definition and Benefits | Indeed.com

Best-cost strategy, or integrated low-cost differentiation strategy, is a method of producing high-quality products at low prices. It focuses on ... 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CareerDevelopmentBest-CostStrategy:DefinitionandBenefitsJune17,2021ShareFacebookEmailLinkedInTwitterThebest-coststrategyisamethodbusinessescanusetoprovidetheircustomerswithhigh-qualityproductsataffordableprices.Whenimplementedcorrectly,thistechniquecanhelpcompaniesstandapartfromtheircompetitors.Learningaboutwhentoimplementabest-coststrategycanhelpyoukeepyourcustomerssatisfied.Inthisarticle,weexplorebest-coststrategy,lookatwhyit'shelpfultouseandexaminethechallengesandbenefitsofusingabest-coststrategy.Whatarecompetitivestrategies?Competitivestrategiesarelong-termactionplansthathelpcompaniestocompetewithbusinessrivalsofferingsimilarproducts.Theyconsiderthestrengths,weaknessesandopportunitiesofcompetitorstoensuretheirownorganizationcanwinmoreclients.Thefivekeycompetitivestrategiesare:Low-costleader:Low-costleadercompaniesconcentrateonprovidingthelowestpriceintheirindustrytoattractcustomers.Broaddifferentiation:Thisapproachfocusesoncreatingauniquenessinthemarketplacetoseparateacompanyfromotherbusinesses.Best-cost:Best-coststrategystrivestoprovideunique,high-qualityproductsorservicesatthebestpossibleprice.Focuslow-cost:Thefocus-lowcostpromotesgoodsorservicesforanichegroupatalowercostthancompetitors.Focusdifferentiation:Thisapproachfocusesonaselectgroupofpeopleandoffersitemspersonalizedforthem.Whatisabest-coststrategy?Best-coststrategy,orintegratedlow-costdifferentiationstrategy,isamethodofproducinghigh-qualityproductsatlowprices.Itfocusesongivingcustomersitemsthatsatisfytheirexpectationsandarewithintheirbudget.Thisisoneofthefivekeycompetitivestrategiesbusinessesusetodistinguishthemselvesfromtheircompetitors.Best-coststrategycombinesthedifferentiationandlow-costproviderstrategies.Toattractbuyers,theyfocusonprovidingappealingperformance,featuresandotherrelatedcharacteristicsatacheaperpricethantheirrivals.Thisapproachalsoencouragesalowerproductioncost,sotheycanreducethepriceofgoodsorservices.Related:10BusinessStrategyExamplesWhyimplementabest-coststrategy?Companiesoftenusethebest-coststrategywhentryingtoofferabetterpricethantheircompetitors.Thiscanhelpputtheminabetterpositioninthemarketplaceandincreasesales.Best-coststrategyalsoworkswhenabusinessislookingtoattractcustomersconcernedaboutthevalueofproducts.Related:CompetitiveAdvantage:DefinitionandExamplesWhentoimplementabest-coststrategyThebest-coststrategyworksbestwhenyouhavetheresourcesandcapabilitiestomanufactureahigh-qualityproductatalowcost.Businesseswithlowfixedcostsandoverheadtendtodobestwiththisapproachsincetheycanaffordtolowerthepriceoftheirproducts.Forinstance,anonlineretailermaydobetterwiththebest-coststrategythanaphysicalstorethathastopayrentontheirbuildingandotherrelatedfees.Anotherinstancewhenthisstrategyworksbestiswhenitpositionsadvantageinthemarketasamedium-qualityproduct.Thoseinterestedinbuyingsomethingmoreadvancedthanthecheapermodelsbutnotinpayingforexpensiveproductsmaychooseamedium-qualityproduct.Forinstance,somecarcompaniesfocusonofferingluxurycarsatpricesthataremuchlowerthanotherpremiumcars.Thebest-coststrategyalsosucceedswhenproductdifferentiationiscommonduetobuyerdiversity.Related:HowToDefineaBusinessStrategyChallengesofbest-coststrategyAfewthingstoconsiderwhenthinkingaboutusingthebest-coststrategyinclude:DifficultyexecutingThebest-coststrategytendstobedifficulttoimplementsinceittakestimetodevelopbetterproducts.Ifacompanyislackingtheabilitytoprovideanaddedadvantageandpriceadvantage,itmayhavetroublecompetingwiththoseusingdifferentiationorlow-coststrategies.Findingtherightcombinationofqualityandaffordabilityiskeytoeffectivelyimplementingthebest-coststrategy.Highup-frontfeesImplementingabest-coststrategyrequiresexpensiveproductdevelopmentandadvertisement.Inordertocompetewithhigh-endproducts,businessesmustbeabletooffersignificantlylowerprices.However,thosewhouseaneffectivebest-coststrategycanseeareturnoninvestmentthat'snotablylessthanthedevelopmentcost.Related:8TipsforHowToReduceYourManufacturingOverheadPositioninginthemarketplaceOneriskbusinessestakewhenapplyingthebest-coststrategyisputtingthemselvesinthemiddlepositioninthemarketplace.Thoseofferinglowerpriceditemsmayattractclientswiththeirlowerprices.However,thosewithhigherpricesmayattractclientsinterestedinhigherqualityproducts.Withproperplanning,abusinesscanpositionitselfrightwhereitwantstobe.Problemswithmulti-taskingBecausethebest-coststrategyfocusesontwocomponents,it'schallengingtomulti-taskbothpriorities.Youneedtobeabletoloweryourcostswhilealsoaddingauniqueaspecttoyourproduct.Thosethatfindtherightbalancebetweenbothcomponentsaremorelikelytosucceed.Benefitsofbest-coststrategySomeofthebenefitsofthebest-coststrategyinclude:SatisfiedcustomersBusinessesthatusethebest-coststrategytendtoappealtoclientswiththeirlowerpricesandareabletogaincustomerloyalty.Thisisbecausetheyoffertheircustomersavaluethatmeetstheirexpectations.Applyingcomponentssimilartothedifferentiationstrategyalsohelpsattractclientsbecauseitcreatesuniquenessforyourproductsandservices.Related:DifferentiationStrategy:Definition,BenefitsandCreationAdvantageovercompetitorsUsingabest-coststrategyhelpscompaniescompetewithothersimilarbusinesses.Whensellingitemsthataresimilartoyourcompetitors'products,usingthisapproachcanhelpyousurpasstheminthemarketbyappealingtoconsumerswithyourbetterpricesanduniqueproducts.LoweroverheadcostsWhenapplyingthebest-coststrategy,organizationscomeupwithinnovativewaystocutcostssothattheycanofferlowerprices.Oftenthiscomesasloweringoverheadcostsandreducingotherfees.Forinstance,afoodbusinessmaydecidetoreducethenumberofitemsontheirmenusothattheycanofferhigherqualitymealsbyreducingtheiroverallfoodcosts.AdaptablebusinessmodelBusinessesthatusethebest-coststrategytypicallyhaveanadaptablebusinessmodel.Whenchangesoccurintheenvironment,theycaneasilyadapttocontinueprovidinghigh-endproductsatlowprices.Thisisbecausethey'renotdependentononecomponent,andtheycanbrainstormnew,differentiatingfeaturesthatwillsetthemapartfromthecompetition.TipsforchoosingabusinessstrategyUsethisadvicewhenchoosingwhetherthebest-coststrategyisrightforyourcompany:Consideryourcustomers.Thinkaboutwhattypesofcustomersyouhaveandwhetherthey'reanichegrouporthewidermarkettodeterminewhethertouseafocusedorbroadstrategy.Determinewhetheryourpositiondependsoncostorquality.Evaluateyourbusinessmodeltofindoutifyourmarketingpositioncouldimprovebyfocusingonyourcost,qualityor,inthecaseofthebest-coststrategy,both.Researchyourcompetition.Looktoseewhatyourcompetitorhasdonewellandareastheycouldimprovetohelpyoudevelopastrategythatwouldallowyoutocompetewiththem.ReadMoreHowToDoTimeBlocking(WithSteps)HowToCreateaSalesBusinessPlanHowToCreateaPressKitRelatedViewMore arrowright6ExamplesofBankingCareerGoalsLearnaboutsettingcareergoalsifyou'reconsideringthebankingindustryandreviewseveralexamplesofcommonobjectives.ADefinitiveGuidetotheAVERAGEIFSFunction(WithTips)LearnabouttheAVERAGEIFSfunctioninExcel,includingwhatitis,whentouseit,threestepsyoucanfollowtouseitforyourowndataandusefultips.