Best Cost Provider Strategy; Preconditions & Market Situations
Before going to discuss about the best cost provider strategy we have to clear you that we’ve discussed about the Strategic Management and it’s another three strategies of core four strategies of strategic management as like Low Cost Leadership Strategy, Board Differentiation Strategy and Focus Strategy (Focused Low Cost Strategy and Focused Differentiation Strategy). We can read these before starting this discussion.
Best Cost Provider Strategy:
As a concept, best cost means high quality and low price of a product. This term is used to indicate a situation where the company tries to achieve lowest cost relative to the competitors who offer similar products and simultaneously tires to improve quality. Best cost provider strategy is often called “Best Cost Provider Strategy”, which we would use frequently in this book. Best cost provider strategy is the strategy of increasing quality of products while reducing costs. This strategy is applied to give customers “more value for the money”. It is achieved by satisfying customer’s expectations on key attributes of products. At the same time, prices are charge lower than that of the competitors. By following the best cost provider strategy, the company attempts to attract the ‘value conscious buyers’ (those buyers who want superior product with lower price).
Best cost provider strategy is a hybrid. It balances a strategic emphasis on low cost against a strategic emphasis on differentiation. It is considered as the most powerful competitive strategy of all. It presupposes “relentlessly striving to become a lower-and-lower cost provider of a higher-and higher caliber product”. Toyota Company of Japan followed best cost provider strategy for its Lexus cars to beat Mercedes-Benz and BMW cars.
Examples of Best Cost Provider Strategy:
Although Toyota Motor Company is known for its low cost provider strategy, it applied best cost provider strategy when it manufactured its luxury-car Lexus models. To compete against such luxury-car makers as BMW and Mercedes-Benz, Toyota management started making Lexus – a car with premium-quality at costs below those of competitors. Toyota’s best cost provider strategy was so successful that Lexus model was ranked among the top 10 models and second best-selling luxury brand in the US market. Another examples is Microsoft Corporation. Microsoft is widely recognized as the committed user of best cost provider strategy in software. This world famous IT-giant is continually improving the quality of its software and at the same time continually reducing the cost of its software products.
Preconditions for Becoming a Best Cost Provider Strategy:
It is easy to say to be a best cost provider strategy, but it is really a tough job to really become a best cost provider in the marketplace. In order to be successful, the company must have the following resources and capabilities to simultaneously lower down costs and improve quality:
- It must have the resources and competitive capabilities to achieve high quality at a lower cost than the competitors.
- It must be able to incorporate appealing (attractive) features at a lower cost than competitors (such as “good-to-excellent product performance or quality”).
- It must provide good-to-excellent customer service at a lower cost than competitors.
Market Situations where Best Cost Provider Strategy Works Best:
A number of factors affect the successful implantation of best cost provider strategy. These market related factors need to be attended properly by the marketers. We present here some of the most dominant market related issues or market situations where best cost provider strategy is likely to work best.
Best cost strategy will work very well in a market where product differentiation becomes the norm because of buyer diversity, and also a substantial number of buyers are sensitive to price and quality.
A company with best cost strategy can position itself near the middle of the market – with a medium quality product at a medium price. Or with a very good product at a medium price. Many buyers may prefer mid-range products. They avoid cheap, basic products of low-cost producers. They also avoid expensive products of top quality.
Resources and Capabilities:
Best cost strategy will work finest when the firm has the assets, knowledge and abilities to incorporate classy product attributes at a lower cost. This strategy is ill-advised it the resources and capabilities do not permit the company to manage costs down and product caliber up.
Best cost provider strategy is ill-advised if the firm’s resources and capabilities are too weak to manage cost down and product caliber up.