Best-Cost Strategy (2024)

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A best-cost strategy relies on offering customers better value for money by focusing both on low cost and upscale difference. The ultimate goal of the best-cost strategy is to keep costs and prices lower than other providers of similar products with comparable quality and features.

Challenges of Best-cost Strategy

Some organizations compete based on offering either low prices or some unique features. Some organizations want both to be effective in their strategy. Firms that offer products or services in low prices and also offer substantial differentiation are said to be following a best-cost strategy.

This strategy is quite difficult to execute as creating some unique features and then communicating the usefulness of these features generally raises the costs of doing business. Product development and advertising are expensive. However, organizations that are able to manage and implement an effective best-cost strategy attain success beyond the ordinary.

TARGET’S BEST COST STRATEGY

Target follows a best-cost strategy. The firm’s products are relatively cheaper among retailers while they are both attracting trend-conscious customers. Target carries products from famous designers, such as Michael Graves, Isaac Mizrahi, Fiorucci, Liz Lange, and others. This is a lucrative position for Target, but the position is currently under attack from all angles.

See Also

Strategic Management - Cost Leadership

Best-cost Strategy and Low Overhead Business Model

A best-cost strategy can let the organization to adopt a business model with very low fixed costs and overhead in comparison to the costs its competitors are incurring. The Internet has made this possible for some organization.

Amazon, for example, charges lower costs as it does not endure the expenses that “brick and mortar” retailers such as Walmart and Target do in operating. Considered alone, this would be a low-cost strategy but Amazon also offers an unmatched portfolio of goods. This combination makes Amazon the unquestioned e-commerce leader in North America.

Adopting a best-cost strategy by significantly reducing the expenses is also possible. Restaurant operations have significant overhead costs, including rent and utilities. Some intelligent chefs avoid such costs by taking their food to the streets. Food trucks serving high-end specialty dishes at cheaper prices are becoming a popular trend.

BEST-COST STRATEGY APPLIED BY FOOD TRUCKS

When permitted, some cities’ food trucks frequently alter position and send out their location for the day (or evening) on Twitter. Apart from keeping costs low, mobile food trucks have another advantage over a traditional restaurant as they can change location to serve more and different clients.

For instance, food trucks sell lunch downtown and afternoon snack near the subway and then move to the nightclub area to sell a late-night snack before the party animals head home.