Low Cost Strategy

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Low cost strategy is one of the three generic marketing strategies. Companies use this strategy to offer low price in its products/services by focusing on various points in its value chain activities.

In order to be a successful low-cost competitor in a competitive environment, companies focus on several issues; which all pass from the ways of margin improvement (in terms of increasing revenue and reducing cost) and asset effectiveness (in the sense of minimizing working capital and maximizing winning on asset). In other words, we can say that low-cost competitors focus on efficiency in its all activities by redefining and cutting costs in their value chain. Here are different attributes which low-cost strategy focused companies make or follow in order to be competitive and have sustainable low-cost strategies:

• Forming partnership in some activities which is too costly for the company to do by itself and/or outsourcing manufacturing activities to low-cost countries. For example, Huawei Technologies (which is importing and developing PBX telephone products) made partnership with 3Com and Siemens so enter new markets and also by using its some other competitive strengths it outcompetes Cisco (well-known global network manufacturer) within 5-6 years.

• Minimizing complex and expensive activities such as, research and development, product design and marketing; and standardizing products and designs.

• Having no-extra service but with the best use of asset utilization. For example, Southwest Airlines lowers its costs by no-frill services but also achieve to maximize its profits by returning the plane from the gate to the air within very short time (about 20 minutes).

• Combining low-price with product differentiation. For example, Japanese retailer Muji as a competitor to Wal-Mart and IKEA.

It is very important for a low-cost strategy focused company to identify and deal with other low-cost competitors as early...
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