Video Transcript: Best Cost Provider Strategy

Organizations pursuing best cost strategies aim squarely at the sometimes great mass of value conscious buyers looking for a good to very good product or  service at an economical price. Best cost provider strategies are a hybrid of low  cost provider and differentiation strategies that aim at satisfying buyer  expectations on key quality features, performance or service attributes and  beating customer expectations on price. The essence of a best cost provider  strategy is giving customers more value for the money by satisfying buyer  desires for appealing features, performance, quality or service, and charging a  lower price for these attributes compared to that of rivals with similar caliber  product offerings. To profitably employ a best cost provider strategy, an  organization must have the capability to incorporate attractive and upscale  attributes at a lower cost than rivals. This capacity is contingent upon first, a  superior value chain configuration that eliminates or minimizes activities that do  not add value, an unmatched efficiency in managing essential value chain  activities and core competencies that allow differentiating attributes to be  incorporated at a low cost. When a company can incorporate appealing  features, good to excellent product performance or quality or more satisfying  customer service into its product offering at a lower cost than most of its rivals,  then it enjoys a best cost status. It is the low cost provider of a product or  service within upscale attributes. A best cost provider can then use its low cost  advantage to under price rivals whose products or services have similar upscale attributes and still earn attractive profits. A best cost provider strategy works best in markets where product differentiation is the norm and attractively large  numbers of value conscious buyers can be induced to purchase mid range  products. A best cost provider usually needs to position itself near the middle of  the market with either a medium quality product at a below average price or a  high quality product at an average or slightly higher than average price, a  company's biggest vulnerability in employing best cost provider strategy is not  having the requisite core competencies and efficiencies in managing value chain activities to support the addition of differentiation. A company with a modest  degree of differentiation and no real cost advantage will likely find itself  squeezed between firms using low cost strategies and those using differentiation strategies. Low cost providers may be able to siphon customers away with  appeal of a lower price and high end differentiators may be able to steal  customers with the appeal of appreciably better product attributes. A company's  competitive strategy should be well matched to its internal situation and  predicated on leveraging its collection of competitively valuable resources and  competencies.