Pursuing the Best-Cost Strategy through a Low-Overhead Business Model. By choosing a unique approach to providing value to customers, a firm achieves an enduring brand loyalty that makes it difficult for others to triumph by merely copying its strategic approach. Q.7. Industry leaders have chosen not to compete in the niche—focusers can avoid battling head-to-head against the industry’s biggest and strongest competitors. offering—all at a lower cost than rivals. Recognizes which process could be improved to provide competitive Best cost provider strategy is adopted in a highly competitive business environment. Few, if any, rivals are attempting to specialize in the same target segment. A low-cost / low-price advantage results in superior profitability only if (1) prices are cut by less than the size of the cost advantage or (2) the added volume is large enough to bring in a bigger total profit despite lower margins per unit sold. A third pitfall is becoming too fixated on cost reduction. C) is particularly well-suited to the use of hit-and-run guerrilla offensives to capture, D) entails trying to wrest market share away from rivals via extra advertising, above-, average expenditures for promotional programs, and heavy use of point-of-sale, E) cannot be sustained over time unless the focuser is aggressive in entering other. 39 Related Question Answers Found Does Apple use cost leadership strategy? A best cost strategy offers some important advantages and disadvantages. Marriott and Ritz-Carlton hotels that provide deluxe comfort and service to business and leisure travelers; it has Courtyard by Marriott and SpringHill Suites brands for business travelers looking for moderately priced lodging; it has Marriott Residence Inns and TownePlace Suites designed as a “home away from home” for travelers staying five or more nights; and it has more than 650 Fairfield Inn locations that cater to travelers looking for quality lodging at an “affordable” price. Alternatively, it may provide a product with better attributes as a comparable price to competitors. A company’s biggest vulnerability in employing a best-cost provider strategy is not having the requisite core competencies and efficiencies in managing value chain activities to support the addition of differentiating features without significantly increasing costs. A low-cost company’s ability to set the industry’s price floor and still earn a profit erects protective barriers around its market position. A best-cost strategy relies on offering customers better value for money by focusing both on low cost and upscale difference. The target market niche is big enough to be profitable and offers good growth potential. These two factors give rise to five competitive strategy options for staking out a market position, competing against rivals, and striving to deliver superior value to customers A low-cost provider strategy A broad differentiation strategy A focused low-cost strategy A focused differentiation strategy A best-cost provider strategy Strategies focusing on a narrow segment of the market require the capability to do an outstanding job of satisfying the needs and expectations of niche buyers. The need to contain differentiation costs is why many companies add little touches of differentiation that add to buyer satisfaction but are inexpensive to institute. The popular Campbell Soup Company is shifting its marketing focus from “Millennials” to “Generation X.”  To do this, it will begin focusing on snacks and simple meals and beverages. market segments where it also can achieve a low-cost advantage. These two factors give rise to five competitive strategy options: A competitive strategy predicated on low-cost leadership is particularly powerful when: As a rule, the more price-sensitive buyers are, the more appealing a low-cost strategy becomes. Companies are much more likely to achieve competitive advantage and earn above-average profits if they find a unique way of delivering superior value to customers. Corporate Governance in America: A Brief History, Analyzing the Organization’s Microenvironment, Horizontal Integration: Mergers and Acquisitions, Index to Tools and Models Used in the Textbook. Multi-brand strategies are attractive to large companies such as Marriott and Hilton precisely because they enable a company to enter a market niche and siphon business away from companies that employ a focus strategy. Marketer offers the best value for the product in the lowest cost. The ultimate goal of the best-cost strategy is to keep costs and prices lower than other providers of similar products with comparable quality and features. The trick to profitable differentiation is either to keep the costs of achieving differentiation below the price premium the differentiating attributes can command in the marketplace or to offset thinner profit margins by selling enough additional units to increase total profits. Other common pitfalls and mistakes in crafting a differentiation strategy include: A low-cost provider strategy can always defeat a differentiation strategy when buyers are satisfied with a basic product and don’t think “extra” attributes are worth a higher price. If a company goes overboard in pursuing costly differentiation, it could be saddled with unacceptably thin profit margins or even losses. Describe the role of strategy supportive reward system with suitable illustrations. Best-cost provider strategies also work well in recessionary times when great masses of buyers become value-conscious and are attracted to economically priced products and services with especially appealing attributes. Competitive strategies that provide distinctive industry positioning and competitive advantage in the marketplace involve choosing between a market target that is either broad or narrow, and whether the company should pursue a competitive advantage linked to low costs or product differentiation. Success in employing a strategy keyed to a best value offering requires the resources and capabilities to incorporate upscale product or service attributes at a lower cost than rivals. D) Best-cost provider strategies aim at giving customers more value for the money, and the target market of companies that employ this strategy is value conscious, E) To become a best-cost provider, a company must have the resources and, capabilities to incorporate good-to-excellent quality, appealing features, good product, performance, and/or good-to-excellent customer service into its product/service. One route toward a best-cost strategy is for a firm to adopt a business model whose fixed costs and overhead are very low relative to the costs that competitors are absorbing (Figure 5.10 "Driving toward a Best-Cost Strategy by Reducing Overhead"). Q.8. They will make package re-designs to make the products more convenient and add unique and adventurous flavors. This means that the strategy involves focusing towards customers who are value-conscious and are willing to pay money in exchange of a good that has upscale features. Figure 5.19 image description: Best-Cost Strategy Firms that charge relatively low prices and offer substantial differentiation are following a best-cost strategy. Porters power of supplier strategy is one form of best cost provider. Source: Media Post, Campbell Soup Brand To Shift Focus From Millennials To Gen X, 2018Fa. B) catering to buyers looking for a medium-quality product at an average price. Companies are motivated to enter into strategic alliances or cooperative arrangements, A) to collaborate on mutually-interesting technology or the development of, B) to improve supply chain efficiency and/or overcome deficiencies in their, technical or manufacturing expertise and/or gain economies of scale in production. Chip Conley, Airbnb's head of global hospitality and strategy, says tens of thousands of hosts are booted off Airbnb each month for not meeting these standards and expectations. Pursuing the Best-Cost Strategy through a Low-Overhead Business Model. The Internet has helped make this possible for some firms. A second risk of employing a focus strategy is the potential for the preferences and needs of niche members to shift over time toward the product attributes desired by the majority of buyers. A business can provide value for its consumers by using the best cost provider strategy and giving the consumer a higher-end product at a lower cost. Course Hero is not sponsored or endorsed by any college or university. Best Cost Provider Strategy Company Example. A) involves a marketing emphasis that communicates the attractive features of a. budget-priced product tailored to fit niche buyers' expectations. How to Use the Best Cost Provider Strategy. Examples of firms that concentrate on a well-defined market niche keyed to a particular product or buyer segment include Discovery Channel and Comedy Central (in cable TV), Google (in Internet search engines), Porsche (in sports cars), and CGA, Inc. 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