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Conduct a Low Cost Strategy

Is low cost a valid and sustainable response to competitive strategies?

Building a Marketing Plan See the practical sheet

Strategic choices require a detailed understanding of the impact of the options chosen.

Low-cost positioning provides effective short-term solutions, but can cause serious difficulties in the longer term. The pros and cons of this aggressive stance need to be weighed up.

Based on a strategy of cost domination, this orientation certainly brings results but also entails risks that should be weighed up before embarking on this path.

On this page, we have listed the benefits and risks that should be taken into account.

The benefits of a low price strategy

Establish yourself as the leader in terms of volumes sold.

Erect barriers to entry into a market.

Increase the quantities sold and therefore the profit if the production benefits from economies of scale

Be able to react quickly to competitive attacks: recover or maintain its competitive position

 Such strategies work when the size of competitors in the market is a competitive advantage. To put it simply: "the bigger the better".

The risks of low cost

Triggering a price war with the consequence of driving average market prices down.

Change the perception of the brand. A company with a quality-oriented brand image risks a decline in customer perception if it changes its message through aggressive commercial practices over time.

Be exposed to the threat of disruptive innovations that can redefine the way value is delivered. The price argument of the ex-leader no longer exists when faced with a product that does much better... at the same price, or even cheaper!

Furthermore, those who follow low price strategies tend to generate process or product innovations, the aim of which is to reduce costs, whereas other players will seek to bring more value to their customers through new functionalities.

The challenge: to defend its competitive positions

An offensive strategy... yes, but you still need to be able to defend your competitive positions. Hence the race to the front in external growth operations that can be observed in certain industries. With contrasting successes depending on whether or not the acquirer succeeds in integrating its target. 

Creating a low cost brand

Companies that are established in their market and are concerned to protect their image very often use a new brand to be able to compete in the lower end of the market. This controlled 'low cost' strategy is not without its problems: watertightness between the two types of offer, impact on the company's culture, its values, etc.

SMEs and the low price positioning

This strategy is not very suitable for SMEs. It is in the interest of small and medium-sized companies to develop specific know-how that they can use in well-identified niches.

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