Strategic Management Report: Best Cost Provider Strategy Analysis

This report delves into the best-cost provider strategy, a key concept in strategic management. It begins by defining the strategy as one that offers customers better value for their money, often through lower prices without compromising quality. The report examines examples such as Target, Netflix, and food trucks, illustrating how companies implement this strategy. It also discusses the challenges associated with the best-cost approach, including potential cuts in advertising and the difficulty of balancing low-cost and high-end differentiation. Furthermore, the report analyzes how companies can achieve cost advantages through innovative methods like cutting distributor costs and utilizing technology. The report highlights the importance of understanding market dynamics and competitive landscapes for effective strategy implementation. It also emphasizes the critical risks and dilemmas companies face when adopting best cost provider strategy.

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According to Michael E. Porter competitive strategy incorporates all those elements
which help a firm stand out different and efficiently perform its business activities compared to
its rivals in the market (E. Dobbs, 2014). A competitive strategy is supposed to incorporate the
mission, vision and uphold the organization’s aspirations. Thus strategic management
incorporates all the activities associated with proper research, planning and market analysis
which in turn helps the marketers understand the potential strengths, weakness, opportunities and
threats present in the industry and what are the effective marketing measures that can be
undertaken by the firm to survive in this dynamic environment.
Best cost strategy completely relies on offering customer a better value for their money to
retain a competitive edge in the industry (Chang, 2016.). The ultimate aim of the business houses
is to set their prices generally a little lower as compared to their subsidiaries who are into the
business of selling similar goods and services. Appropriate cost strategy is an integral part of
strategic business management. However in today’s competitive and dynamic business
environment the best cost strategy might turn a risky venture, as it may be difficult to sustain the
profit margin in pertaining to the low pricing in the market.
One of the important methods of achieving best-cost strategy is to adopt a business model
that has extremely low fixed costs and overhead compared to the cost offered by its competitors.
Target is one such brand which is witnessed to follow a best-cost strategy (Keller, 2014). The
firm generally charges prices that are comparatively much lower compared to other retailers
however with no compromise in its quality and variety of products. Another potential example is
Netflix (Wayne, 2018). This firm provides greater variety of movies and series at exclusively
lower rates by conducting its business completely via mail and through internet. Another

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significant implication of best cost strategy is the growing popularity of food trucks. It has been
witnessed by the marketers that owing a restaurant is definitely a matter of significant financial
investment. Thus big restaurants and renowned chefs have accepted the policy of taking their
food to the streets. For instance, the JAPADOG food trucks found in the streets of Vancouver
famous for their delicious hot dogs. Apart from cost cut advantages, mobile food trucks also
enjoy the freedom of being mobile and going to different locations at a relatively low investment
cost (JAPDOG, 2014). This is the exact benefit of best cost provider strategy.
However the marketers must be very well aware of the critical challenges that the
business firm might face during its adaptation to these best cost strategy. Best cost strategy at
times compel the business firms and market operators significantly cut down their advertisement
and promotional expenses which in turn makes it difficult for the firm to effectively reach to its
target audience (Bijman, 2016). Another significant example as analyzed by the industry experts
is IKEA- a Swedish company and a known name which is known to design and sell ready-to-
assemble furniture like chairs and beds along with other home accessories (Ikea.com, 2019).A
deeper analysis on the costing strategy of this business firm highlights how the firm maintains its
cost effectiveness through sourcing its products mostly in low-wage countries and by offering
very basic level of success. For instance Ikea makes sure that they deliver their furniture only on
payment of additional cost or else the customers are requested to collect the furniture from the
warehouse. However many firms take this as a potential risk because in today’s dynamic
environment if customers are not handled with utmost care and priority they might lose the
customer thus observing the above mentioned best cost provider strategy might be difficult.

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According to Porter, for a company to initiate a more cost efficient job of handling its
value chain compared to its immediate rivals, the managers must be focused enough to devise
innovative and effective ways to cut down excess costs. Thus attempts to out manage the rivals
on cost commonly involve the undertaking cost effective strategies like: cutting down excess
cost of the distributors as well as dealers by selling directly to the customers, implication of
internet technology has helped in completely revolutionizing the supply chain management by
just few clicks and turning many time-consuming and labor-intensive activities into paperless
transactions performed instantaneously. According to Porter, in his journal article The Five
Generic Competitive Strategies states: “A best-cost provider strategy works best in markets
where buyer diversity makes product differentiation the norm and where many buyers are also
sensitive to price and value”. A price sensitive market is the best option to employee and tests
these pricing strategies to achieve utmost success.
However again while discussing about the risks associated with this cost benefit strategy
the biggest dilemma that the business firm faces is between employing low-cost and high-end
differentiation strategies. Low-cost providers have the potentials to draw in more price
sensitive consumers who prefer to spend less and draw in more benefits (despite their less
appealing product attributes) whereas high-end differentiators has potentials to pull in those
consumers who view the price range of the products as a sole determinant of the quality of the
product (even though their products carry a higher price tag). Best Cost-strategy implication
varies from one market structure to other. In a competitive market scenario best cost strategy is
largely implied by the marketers to stay relevant in among similar brands selling similar goods.
Cost strategies are considered vital irrespective of how big or small the brand is because at the

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end of the day it intends to decide the amount of revenue that the firm will make from its
immediate market competition.

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References:
Bijman, J., 2016. Agricultural cooperatives and market orientation: A challenging combination?.
In Market Orientation (pp. 151-168). Routledge.
Chang, J.F., 2016. Business process management systems: strategy and implementation.
Auerbach Publications.
E. Dobbs, M., 2014. Guidelines for applying Porter's five forces framework: a set of industry
analysis templates. Competitiveness Review, 24(1), pp.32-45.
Ikea.com. (2019). Shop for Furniture, Lighting, Home Accessories & More. [online] Available
at: https://www.ikea.com/gb/en/ [Accessed 4 Sep. 2019].
JAPADOG. (2014). Japanese style Hot dog in Canada. Retrieved from http://www.japadog.com/
Keller, K.L., 2014. Designing and implementing brand architecture strategies. Journal of Brand
Management, 21(9), pp.702-715.
Porter, M.E., Stalk Jr, G., Lachenauer, R., Hamel, G., Prahalad, C.K., McMillan, I.C. and
McGrath, R.G., The Five Generic Competitive Strategies. G. Thompson, Generic Strategies.
Wayne, M.L., 2018. Netflix, Amazon, and branded television content in subscription video on-
demand portals. Media, Culture & Society, 40(5), pp.725-741.

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