Question

Give opinion: The circumstances in which a firm chooses a low-cost strategy to attain sustainable competitive advantage is when the quality of goods is similar to each other and there are few other differentiating parameters. An example of this that I have found would be gas prices within a city. Usually the quality of gasoline being sold is similar to one another, there is no packaging and the means of getting the gas is the same (gas pumps), and there is not much to market to differentiate one type of gasoline from another. So, gas stations will lower their prices by one cent just to have the "competitive edge" over its adversaries.

Answer 1

The circumstances in which a firm chooses a low-cost strategy to attain sustainable competitive advantage is when the quality of goods is similar to each other and there are few other differentiating parameters

This statement is true as when the products are almost similar in nature so the way to create core competitence and competitve edge is cost reduction

As it would create a attractiveness towards the consumers and would increase the demand for our product and thus would result in increase in the sale revenue of the company

The company can acheive cost reducution statergy is by using the principle of economies of scale

Cost reduction strategies from Kepner-Tregoe (KT) are effective principles or methods for increasing operations efficiency. Cost reduction strategies can reduce operations costs while increasing productivity, allowing for strategic reallocation of resources.

Advantages would be

1. Cost reduction increases profit:It provides a basis for more dividends to the shareholders, more bonus to the staff and more retention of profit for expansion of the business which will create more employment and overall industrial prospects.

2. Cost reduction will provide more money for labour welfare schemes and thus improve men- management relationship.

3. Cost reduction will help in making goods available to the consumers at cheaper rates. This will create more demand for the products, economies of large scale production, more employment through industrialisation and all-round improvement in the standard of living.

4. Cost reduction will be helpful in meeting competition effectively.

5. Higher profit will provide more revenue to the government by way of taxation.

6. As a result of reduction in cost, export price may be lowered which may increase total exports.