Scribd
Upload
12 views8 pages

Session 5

The document discusses pitfalls to avoid when pursuing a low-cost provider strategy, including overly aggressive price cutting, reliance on easily replicable cost reduction methods, and an excessive focus on cost that neglects buyer interests. It emphasizes the importance of sustainability in cost advantages and warns of risks from innovative rivals and technological breakthroughs. Additionally, it touches on broad differentiation strategies that create unique customer value propositions.

Uploaded by

TDM S
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
12 views8 pages

Session 5

The document discusses pitfalls to avoid when pursuing a low-cost provider strategy, including overly aggressive price cutting, reliance on easily replicable cost reduction methods, and an excessive focus on cost that neglects buyer interests. It emphasizes the importance of sustainability in cost advantages and warns of risks from innovative rivals and technological breakthroughs. Additionally, it touches on broad differentiation strategies that create unique customer value propositions.

Uploaded by

TDM S
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
You are on page 1/ 8

For

Companies
and Markets

Session 5
Pitfalls to Avoid in Pursuing a Low-
Cost Provider Strategy

a. Overly Aggressive Price


Cutting A low-cost advantage results in
The biggest mistake a low-cost superior profitability only if the
provider can make is being overly added gains in unit sales are
aggressive with price cutting and large enough to bring in a bigger
ending up with lower, rather than total profit despite lower margins
higher profit. per unit sold.
b. Relying on an approach to reduce
costs that can be easily copied by rivals.

The value of a cost advantage depends on its


sustainability. This, in turn, hinges on whether the
company achieves its cost advantage in ways difficult for
rivals to replicate or match.
If rivals find it relatively easy or inexpensive to imitate the
leader’s low-cost methods, then the leader’s advantage
will be too short-lived to yield a valuable edge in the
marketplace.
c. Becoming too fixated on cost
reduction

A company driving hard to push its


cost down has to guard against
Low costs cannot be pursued so
ignoring buyers’ interest in added
zealously that a firm’s offering ends
features or services, declining
up being too features-poor to gain
buyers’ sensitivity to price, or new
the interest of buyers.
developments that alter how
buyers use the product.
Even if these mistakes are avoided, a low-cost provider strategy still entails risk. An innovative
rival may discover an even lower-cost value chain approach.

Important cost-saving technological breakthroughs may suddenly emerge.

If a low-cost provider has heavy investments in its present means of operating, then it can
prove very costly to quickly shift to the new value chain approach or technology.
Broad Differentiation Strategies

The company achieves its aim


when an attractively large
A differentiation strategy calls number of buyers find the
for a customer value customer value proposition
proposition that is unique. appealing and become strongly
attached to a company’s
differentiated attributes.
Cost Drivers
Uniqueness Drivers

Quality Product
Customer Production
Control Features and
Service R&D
Processes Performance

Employee,
Technology Sales &
Input Quality skill, training,
and Innovation Marketing
experience

You might also like