Best-cost strategy is when the company makes an upscale product at a lower price which in turn gives more value to customers in exchange of money. 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. Low-cost strategy focuses on niche customers. They sell their products to those niche customers at a lower price than other produces selling the same products to the particular market segment.
Their products have features and attributes that fit the tastes of the niche customers. Best-cost strategy creates competitive advantage as it looks at the broad market and there is much differentiation between products of their rivals where as the low-cost strategy they compete with rivals cost effectively by trying to reduce the cost of production inside the company and there is very little differentiation between their products to that of their rivals.
Q2: Give an example of both?
An example of best-cost strategy would be Toyota’s best-cost producer strategy for its Lexus line. They changed from making high quality Toyota models to premium quality Lexus models at a cost lower than other luxury car makers and they were able to do this because “Toyota’s supply chain capabilities and low-cost assembly know-how allowed it to incorporate high-tech performance features and upscale quality into Lexus models”.
An example of low-cost strategy would be Vizio, a company that designs flat panel LCD and Plasma TVs. They are among the lowest priced brands while having very high quality and the reason why they are able to keep their costs low is because they are manufacturing in Thailand and they have a major stakeholder called AmTran Technology, a company that handles the production. Making AmTran a stakeholder is a tactful low-cost strategy because it protects Vizio against threats of price increases or product shortage.
Q3: Why would a company select the one or the other option?
A company would select best-cost strategy because their product, such as computers or cars, has to do with how much it appeals the customers. The products are value-orientated and they continuously try to improve their design and features in order to appeal to the customers and stay in the competitive market. A company would select low-cost if they do not wish to compete with so many rivals but feel that they can make potential profit out of niche customers and making products that are customized and specifically appealing to them only.
Page 110, Essentials of Strategic Management, Gamble/Thompson, 2nd edition