Low Cost Strategy Meaning Benefits Examples - thekeepitsimple (2024)

Low cost strategy is among the most used approaches. It means to produce a company’s products or services at the lowest possible cost in the entire market.

It will let you control the other aspects of your business much better & it perfectly complements competitor-based pricing. Thus, you will eventually rule the market among all of your competitors.

This article has mentioned all the essential details related to low cost strategy. Thus, if you’re also interested in knowing more about it, read this in-depth guide!!

What is a Low Cost Strategy?

Low Cost Strategy is a pricing strategy where companies get the goods and services at a lower cost in the entire market by applying various saving methods. The company uses its best employees to reduce the cost of the products and make them available at an affordable price.

For instance, if two companies are selling the same product at the same price, it would make you more profit because of your low cost strategy.

However, constantly, in such low-cost marketing strategies, you focus on something other than the quality of the products but the number of units you can sell. It helps in shaping the market for the “cheap product companies.” All you have to do here is conserve significant capital, have a high technical capacity, and invest in the latest technologies to reduce costs.

When you provide the products and services at the lowest possible cost, then it would make you the low-cost provider. It disrupts the competition and makes people forced to change their high prices. The benefit of this best cost strategy is having a cost advantage over your rivals or competitors.

7 Amazing Factors Which Helps Low Cost Strategy Benefitting the Business

Overcoming Threats From Competitors

Since you have the lowest cost of the product or services, you will not face any competitor’s business attacks often. The best thing is that even if your competitor comes up with the lowest price in the market, even at that time, you would easily cut down your prices.

It is possible for the company only because of its undue cost advantage over its competitors. Therefore, it dominates the market because of its cost-leadership position.

Effective Dealing With Powerful Suppliers

When a specific business has a few suppliers, it makes the prices of raw materials and other inputs entirely dependent upon them. They make any uncertain price change. Therefore, a low cost strategy can help you efficiently deal with such sudden price increases.In most cases, companies have strong economic pricing strategies.

Facing influential Buyers Effectively

There are various big buyers in the market, including dealers, wholesalers, and retail chains such as Agora and Meena Bazaar of Wal-Mart. They often decide the prices for a company’s product. Thus, if you follow the low cost strategy, you will be OK with this.

Encountering Threats From Substitute Products

Low-cost leaders will never have any fear of any of its substitute products. Because they always have the option to reduce their prices when any substitute comes up in the market. Thus, low cost leadership helps companies to retain the total market share.

Overcoming Threats From The Entry of Potential Competitors

A low cost strategy always hinders the other competitors from entering the market. The cost advantage a company has automatically acts as a barrier for everyone. Therefore, it is also known as the best cost-provider strategy.

Understanding Focused Low Cost Strategy

The Company following Focused Low Cost Strategy can not be called the one selling its products and services at the lowest prices but the one offering the lowest prices among its competitors.

Suppose several companies are making an identical product and selling it at the same price. At that time, companies with a broad low cost strategy will earn more profit per sale. This always gives the low cost marketing companies an undue advantage over the other companies.

These companies have various other areas to explore and grow. They can invest more in marketing. They can acquire better positions in the retail market. It can also lower their prices and immediately affect their competitor’s profit margins. They can also invest more in research and development to better product performance.

Generally, the low-cost leaders are the actual rulers of the segment. Because, if they want, they can lower their prices to the point where others have to bear the loss to sustain in the market. In the low cost strategy, your company should understand costs and how to reduce them.

Example of Low Cost Strategy

Walmart

One excellent example of a low cost strategy is Walmart. This brand controls 11,443+ retail locations around 24 countries over the globe. They have maintained its products, prices, and suppliers to make its competitors next to impossible to survive and sustain in the market.

The company invests the rest of the cost into the proper distribution channel. It also makes a significant investment in its technologies, which keeps them up-to-date. All these extra savings give them an additional edge to grow in the long run.

Netflix

Netflix is also a great example of a low-price strategy. They offer streaming services to their target audience. It has lower pricing demand in comparison to all of its competitors. It even rules the market by utilizing its additional money.

Final Words

Low-cost strategy is one of the ideal strategies. It will help you make more profit margins while keeping you at the front. However, it doesn’t doesn’t have any relation with the quality of products. You can use this strategy over every product or service type but at most of them. We hope you like the guide and find all of your required queries.

Frequently Asked Questions (FAQs)

What is a low cost strategy for example?

Low cost strategy is a strategy to keep your cost at its bare minimum. For example, if two companies are creating an identical product, the one with a low cost strategy should have the lowest possible cost. Great examples of low-cost strategies are Netflix and Walmart.

Why is a low cost strategy good?

Low cost strategy allows the company to sell its products and services at a lower price. It also helps them earn more profit margins. Therefore, this strategy makes the company eventually rule the industry and its competitors because you will have an undue competitive advantage.

What is a low-cost advantage?

Low cost advantage means having to bear low expenses while producing products or providing services. Such companies with low cost strategies can invest the most money in other aspects of business, including marketing.

What is meant by Porter’sPorter’s low cost strategy?

Porter has stated that companies can benefit by following the low-cost or differentiation strategy. According to him, the low-cost strategy allows the companies to showcase their products at the lowest possible price.

What is low cost marketing?

Low-cost marketing is a marketing strategy for early businesses or startups. It will have a lower impact on their marketing budget. This gives the company the liberty to focus more on the other aspects of its business. At the same time, you will also get the leads and your brand awareness.