Best Cost Strategy: Definition, Examples - iEduNote

The best-cost strategy is the strategy of increasing the quality of products while reducing costs. This strategy is applied to give customers “more value ... Asaconcept,Best-Costmeanshighqualityandlowpriceofaproduct.Thistermisusedtoindicateasituationwherethecompanytriestoachievethebest(lowest)costrelativetothecompetitorswhooffersimilarproductsandsimultaneouslytriestoimprovequality.Thebest-coststrategyisthestrategyofincreasingthequalityofproductswhilereducingcosts.Thisstrategyisappliedtogivecustomers“morevalueforthemoney.”Itisachievedbysatisfyingcustomers’expectationsonkeyattributesofproducts.Atthesametime,pricesarechargedlowerthanthecompetitors.Byfollowingthebest-coststrategy,thecompanyattemptstoattractthe‘value-consciousbuyers’(thosebuyerswhowantasuperiorproductatalowerprice).Thisstrategyisahybrid.Itbalancesastrategicemphasisonlow-costagainstastrategicemphasisondifferentiationwhichisunderstandable.Itisconsideredasthemostpowerfulcompetitivestrategyofall.Itpresupposes‘relentlesslystrivingtobecomealower-and-lowercostproviderofahigher-and-highercaliberproduct.’ToyotaCompanyofJapanfollowedthebest-coststrategyforitsLexuscarstobeatMercedes-BenzandBMWcars.Best-CostStrategyDefinedAsaconcept,best-costmeanshighqualityandlowpriceofaproduct.Thistermisused’toindicateasituationwherethecompanytriestoachievethelowestcostrelativetothecompetitorswhooffersimilarproductsandsimultaneouslytriestoimprovequality.Best-costproviderstrategyisoftencalled‘best-coststrategy’,Thebest-coststrategyisthestrategyofincreasingthequalityofproductswhilereducingcosts.Thisstrategyisappliedtogivecustomers“morevalueforthemoney.”Itisachievedbysatisfyingcustomers’expectationsonkeyattributesofproducts.Atthesametime,pricesarechargedlowerthanthatofthecompetitors.Byfollowingthebest-coststrategy,thecompanyattemptstoattracttheValueconsciousbuyers’(thosebuyerswhowantasuperiorproductatalowerprice).Thebest-coststrategyisahybrid.Itbalancesastrategicemphasisonlow-costagainstastrategicemphasisondifferentiation.Itisconsideredasthemostpowerfulcompetitivestrategyofall.Itpresupposes‘relentlesslystrivingtobecomealower-and-lowercostproviderofahigher-and-highercaliberproduct.’ToyotaCompanyofJapanfollowedthebest-coststrategyforitsLexuscarstobeatMercedes-BenzandBMWcars.ExamplesofBest-CostStrategyAlthoughToyotaMotorCompanyisknownforitslow-coststrategy,itappliedthebest-coststrategywhenitmanufactureditsluxury-carLexusmodels.Tocompeteagainstsuchluxury-carmakersasBMWandMercedes-Benz,ToyotamanagementstartedmakingLexusacarwithpremium-qualityatcostsbelowthoseofcompetitors.Toyota’sbest-coststrategywassosuccessfulthattheLexusmodelwasrankedamongthetop10modelsandthesecondbest-sellingluxurybrandintheUSmarket.AnotherexampleisMicrosoftCorporation.Microsoftiswidelyrecognizedasthecommitteduserofthebest-coststrategyinsoftware.Thisworld-famousIT-giantiscontinuallyimprovingthequalityofitssoftwareandatthesametimecontinuallyreducingthecostsofitssoftwareproducts.MarketSituationsFavorableforBest-CostStrategyAnumberoffactorsaffectthesuccessfulimplementationofthebest-coststrategy.Thesemarket-relatedfactorsneedtobeattendedproperlybymarketers.Wepresentheresomeofthemostdominantmarket-relatedissuesormarketsituationswherethebest-coststrategyislikelytoworkbest.BuyerdiversityThebest-coststrategywillworkverywellinamarketwhereproductdifferentiationbecomesthenormbecauseofbuyerdiversity,andalsoasubstantialnumberofbuyersaresensitivetopriceandquality.PositioningadvantageAcompanywithabest-coststrategycanpositionitselfnearthemiddleofthemarket–withamedium-qualityproductatabelow-averageprice,orwithaverygoodproductatamediumprice.Manybuyersmayprefermid-rangeproducts.Theyavoidcheap,basicproductsoflow-costproducers.Theyalsoavoidexpensiveproductsoftopquality.ResourcesandcapabilitiesThebest-coststrategywillworkbestwhenthecompanyhastheresources,know-how,andcapabilitiestoincorporateupscaleproductattributesatalowercost.Thisstrategyisill-advisediftheresourcesandcapabilitiesdonotpermitthecompanytomanagecostsdownandproductcaliberup.ReasonsforFailureofBest-CostProviderStrategyItiseasytosaytobeabest-costprovider,butitisreallyatoughjobtoreallybecomeabest-costproviderinthemarketplace.Inordertobesuccessful,thecompanymusthavethefollowingresourcesandcapabilitiestosimultaneouslylowerdownpostsandimprovequality;Itmusthavetheresources:andcompetitivecapabilitiestoachievehighqualityatalowercostthanthecompetitors.Itmustbeabletoincorporateappealing(attractive)featuresatalowercostthancompetitors(suchas‘good-to-excellentproductperformanceorquality’)itmustprovidegood-to-excellentcustomerserviceatalowercostthancompetitors.Whenafirmcannotfulfilltheseconditionsorafterinitialfulfillmentoftheconditionsfailstocontinue,itislikelytofailingainingtheadvantagefromthebestcoststrategy.←FragmentedIndustry:StrategiesForFragmentedIndustry→FocusStrategy:Meaning,TypesofFocusStrategyReadRelatedPosts/4LevelsofStrategy:TypesofStrategicAlternativesIndustryLifeCycleCompetitiveStrategy:FourTypesofCompetitiveStrategyCorporateStrategy:ImplementationProcessofCorporateStrategyCostLeadershipStrategy(Low-CostStrategy)DifferentiationStrategy:Definition,TypesFocusStrategy:Meaning,TypesofFocusStrategyBestCostStrategy:Definition,ExamplesFragmentedIndustry:StrategiesForFragmentedIndustryStrategicOptionsforDifferentIndustriesandCompanySituationsADVERTISEMENTADVERTISEMENTADVERTISEMENT