What Is the Chief Difference Between a Low-Cost Provider ...

Low-Cost Provider Strategy ... A low-cost provider seeks to sell its products at the lowest price it can, while still making a profit so that it can draw ... CultureMusicSportsFood&DrinkEntertainmentLifeHomesNewsWeatherShoppingJobsCarsWhatIstheChiefDifferenceBetweenaLow-CostProviderStrategyandaFocusedLow-CostStrategy?SmallBusiness|BusinessPlanning&Strategy|BusinessStrategiesByNickyLaMarcoUpdatedDecember19,2018WhatIstheImportanceofDeterminingtheMarketValueofaProduct?DifferentiatedMarketingStrategyVs.UndifferentiatedWhatIsProductDifferentiationandHowIsItPromoted?DifferentiationinProductMarketingStrategyExamplesofManagementStrategiesforaCakeBakeryBusinessWhatkindofstrategyhaveyouadoptedforyourbusiness?Beforeyoudecidewhetheryouwantalow-coststrategy,doyouknowwhatotheroptionsyouhaveavailabletoyou?Thisiswheretheideaofacompetitivestrategycomesin.WhatIsaCompetitiveStrategy?Acompetitivestrategyissimplyanythingabusinessdoesinordertogainacompetitiveadvantageoveritscompetitors.Itisagoodthingfortheconsumersinthemarketbecauseitgivesthemaddedvalue.Sometimes,thataddedvaluecomesintheformoflowerpricesandsometimesitcomesintheformofincreasedservicesandbenefits,whichultimatelyjustifiesthehigherpricesthattheyhavetopay.Inageneralsense,therearefourpossiblecompetitivestrategiesthatabusinesscanimplement:Themainstrategiesareactuallytwo,andtheothertwoaresimplyvariationsonthemainstrategies.Thetwomainstrategiesyoucanadoptasabusinessarethatyoufocuseitheroncostsorondifferentiation.Whenyoufocusoncosts,thenyoutrytobecomealow-costprovider.Whenyoufocusondifferentiation,thenyoulooktocompetebyaddingextravaluetoyourcustomersthattheywon’tfindinyourcompetitors.Inotherwords,youarefocusingonareasotherthancosttosetyourselfapartfromthecompetition.Theothertwostrategiesaresimplyvariationsonthefirsttwo.Forcost,youcaneitherloweryourcostsinabroadsenseoryoucanlowerthemonlyforaspecificniche.Thesamegoesfordifferentiation.Low-CostStrategiesWithalow-coststrategy,youcanonlywinifyouarethecompanywiththelowestcostinthemarket.Ifabunchofcompaniesaresellingproductsinthatarea,which,forallintentsandpurposes,areidentical,thenthecompanythatsellstheproductsatthelowestpriceswillgetthegreatestnumberofcustomers.Ifyoucankeepyourcostslow,thenyouwillbenefitfromsuchastrategy.Ifabunchofcompaniessellidenticalproductsatthesameprice,thecompanythatcankeepitscostslowwillhavethehighestprofitmargin,andwillemergethewinner.Thisadvantageiscrucialbecauseitallowsthecompanythatcankeepitscostslowtoexplorestrategiestomaintainthatadvantageandevenincreaseit.Thecompanycouldtrynewmarketingmethods,forexample,orincreaseitscurrentmarketingefforts.Itcouldtrytogetbetterpositionsinretailstoressoitsproductsdobetterthanthoseofcompetitors.Itcaninvestinresearchanddevelopmenttoimproveitsproducts.However,themostpowerfulthingitcandotokeepitscompetitorsoutofthemarketistoreduceitsprices.Infact,ifyouthinkaboutit,allcompaniesinanygivenmarketthathavehighercostsonlystayoninthosemarketsbecausethelowercostcompaniesletthem.Ifthelowercostcompanieschoseto,theycouldsqueezethesehighercostcompaniesoutofthemarketbyreducingtheirprices.Thehighercostbusinesseswouldnotbeabletocompeteandwouldhavetoshutdown.Thisisastrategythathasoftenbeenusedtoforcecompetitionoutofthemarket.Thiskindofstrategyisano-frillsstrategy.Allyou’llbelookingtodoistominimizeyourcostsinordertogivethelowestpricestoyourcustomersandallowthemtosave.Youshouldhavehightechnicalcapacityandplentyofcapitalandinvestinthelatestcost-savingtechnologiesinordertobeabletopullthisoffwell.Inmostcases,theveryfirstcompaniesthatmanagetosignificantlylowertheircostsendupbeingmarketleadersbecausetheygrowtheirmarketshareandutilizetheircapacitieswell,whichpushestheircostsevenlowerduetoeconomiesofscale.Thereissomethingtobesaidforthisstrategy,asfarasthesizeofthebusinessisconcerned,andinfact,thatisthebasisuponwhichthestrategyisdividedintothebroadandnicheversions.Low-CostProviderStrategyAlow-costproviderseekstosellitsproductsatthelowestpriceitcan,whilestillmakingaprofitsothatitcandrawcustomerstothemarket.Thisisthebroadversionofthelow-coststrategybecausesuchcompaniestrytoappealtoabroadmarket.Theywilllookboosttheirsalesvolumesashighastheycanbyattractingasmanydifferenttypesofcustomerstobuyasmanydifferenttypesoftheirproductsastheycan.Obviously,suchacompanywouldhavetobelargeinordertobeabletopullthestrategyoff.Itwouldneedtohavemultipleproductlinesthatappealtoawiderangeofcustomertypesanditwouldneedtohaveveryhighproductioncapacityinordertomeetdemandandgeneratehighsalesvolumes.Smallbusinessesmightfinditdifficulttopulloffthiskindofstrategy.FocusedLow-CostStrategyIfasmallbusinesscannotappealtothebroadermarket,whatisasmallbusinesstodo?Itfocusesonaniche,ofcourse.Whileasmallbusinesscannotfeasiblyachievelowpricesonallofitsproducts,itcantryandfocusonasmallnicheandtrytobethelowestcostproviderinthemarketforthatspecificniche.Thisismucheasiertodoandcanhelpdistinguishasmallbusinessforaspecialtythatcouldcatapultitintomassivegrowth.Thatistheessenceofthedifferencebetweenthetwostrategies.Inthefirstyouseektolowercostseverywhere,intheotheryoupickyourbattlesandchargenormalpricesforeverythingelse.DifferentiationStrategiesAttheheartofdifferentiationisthebeliefthatyouneedtopositionyourselfinaunique,clearwayinthemarketinordertoattractcustomers.Youwantthemarkettoperceiveyouasbeingahighervalueproviderthanyourcompetitors.Notethedistinctionbetweenvalueandprice.Ifyoucanconvincethecustomerthatyouareprovidingthemwithmorevaluethanthenextguy,thenyoucanchargethemahigherprice.Differentiationstrategiesworkinmarketcircumstancesinwhichthecustomersaren’tjustfocusedonprice,butwheretheyconsiderotheraspects,aswell,beforetheymakeapurchase.Consequently,thiskindofcompetitivestrategytendstoworkbetterincertainmarketsthaninothers.Whenyoudecidetoadoptthisstrategy,youshouldunderstandtheneedsandpreferencesofyourcustomerstoa‘t’.Youshould,therefore,beconstantlyinnovatinginordertokeepupwiththoseneedsandpreferences.Anotherthingyoushouldworkonbuildingisyourbrand,includinghowvisibleitisandhowwellitispositioned.GeneralDifferentiationvs.FocusedDifferentiationHereagain,justlikewithcost,youcaneitherdifferentiateyourselfinabroadsenseorinaparticularniche.Ifyoutendtobealargecompanythatfocusesonaspecificlineorspecificlinesofproducts,thenyoucandifferentiateyourselfinabroadsensesothatcustomersrecognizeyourbrandineveryproducttheybuyfromyou.AgoodexamplehereisApple,whichsellsphonesandcomputerswhilealsoofferingvariousservices.TheyhavedifferentiatedthemselvesinabroadsensesothateveryAppleproductfeelsdifferent,superioractually,fromotherproductsinitscategory.Youcanalsodifferentiateyourselfinaparticularniche.Haveyoueverlovedgoingtoaparticularrestaurantjustforaspecificitemontheirmenu,suchastheirburger,ortheirmilkshakeandwhathaveyou?Thatisnichedifferentiation.Therestaurantisn’tthebestateveryfooditmakes,butit’scertainlythebestatoneortwo.Thiskindofnichedifferentiationisparticularlycommonwithsocialmediaplatforms.WhileInstagram,Facebook,andInstagramareallsocialmediaplatformsthatallowmostofthesamestuff(postingtext,images,videos,livestreaming,andengagements),theyhavealltargetedspecificnichesinordertodifferentiatethemselves.Instagramisforphotos,Twitterforsmallshareworthyposts,andFacebookforlongerpostsandvideos.Thatispartofwhatmakeseachofthemsodistinctintheworldofsocialmedia.ReferencesUniversityofCambridge:Porter'sGenericCompetitiveStrategies(waysofcompeting)MonashUniversity:LowCostStrategyWriterBioNickyisabusinesswriterwithnearlytwodecadesofhands-onandpublishingexperience.She'sbeenpublishedinseveralbusinesspublications,includingTheEmploymentTimes,WebHostingSunandWOW!WomenonWriting.Shealsostudiedbusinessincollege.RelatedArticlesFourMethodsofCompetitiveAdvantagesDifferentiatedBusinessStrategiesCostLeadership&CompetitiveAdvantageCafePricingStrategyStrategiestoOvercomeMarketingThreatsIsCuttingPricesaGoodMarketingStrategy?UniqueSellingPointsforMarketingProductsWhichTypeofStrategyIsMostAppropriateforYourOrganization?HighestProfitMarginStrategiesWhatIstheImportanceofDeterminingtheMarketValueofaProduct?DifferentiatedMarketingStrategyVs.UndifferentiatedWhatIsProductDifferentiationandHowIsItPromoted?1FourMethodsofCompetitiveAdvantages2DifferentiatedBusinessStrategies3CostLeadership&CompetitiveAdvantage4CafePricingStrategy