Low cost strategy is a type of pricing strategy in which the firm offers the products at low price. This strategy helps to stimulate the demand & gain higher market share. The firm can gain cost advantages by increasing their efficiency, taking advantage of economies of scale, or by getting the raw material at low cost.
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For a firm to be cost leader and adopt low cost strategy, the following factors are important:
1. Access to capital to make significant investments.
2. Efficiency in Production system
3. Expertise to improve the manufacturing process
4. Acquire Raw materials at lower cost
5. Low labor costs
6. ability to outsource
The low cost strategy also comes up with the risk that other firms may also reduce their prices & a price war may start.
Low cost strategy is used by lot of domestic airlines which offer tickets at a very low price to acquire customers and first time fliers. This was made possible by adding frequent sectors in the routes and offering no-frills flying experience and more seating in one flight. This helped many airlines to cut cost and overall cut the ticket prices leading to more people flying in various sectors.
Hence, this concludes the definition of Low Cost Strategy along with its overview.
This article has been researched & authored by the Business Concepts Team. It has been reviewed & published by the MBA Skool Team. The content on MBA Skool has been created for educational & academic purpose only.
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