Striving to Be the low-Cost Producer
Striving to be the low-cost producer is a powerful competitive approach in
markets where many buyers are price-sensitive. The aim is to open up a sustainable
cost advantage over competitors and then use lower cost as a basis for
either underpricing competitors and gaining market share at their expense or
earning a higher profit margin selling at the going price. A cost advantage will
generate superior profitability unless it is used up in aggressive price-cutting
efforts to win sales from rivals. Firms that achieve low-cost leadership typically
make low cost relative to competitors the theme of their entire business
strategy-though they must be careful not to pursue low cost so zealously that
their products end up being too stripped down and cheaply made to generate
buyer appeal.